5 Reasons Social Media is Still a Smart Investment

By Brittany Lyte on 2 March 2015 0 comments

Welcome to the heyday of the social media stock. Not only is the value of shares in companies like LinkedIn and Facebook soaring, but experts also say these companies have got lasting power and major growth potential, making them good long-term investments. Sure, these companies have seen their fair share of challenges. Last year the Federal Reserve called their valuations "stretched" and Twitter's stock value slumped to an all-time low. But these companies have lived and learned from their fumbles. Advocates say they've ironed out many of the kinks, making them better poised for a bright future than ever. Here are five reasons to favorite social media in your portfolio.

1. Social Media Is Overtaking Search

Businesses are always looking for better ways to promote themselves and connect with customers, and social media is overtaking search as one of the most sure-fire, influential ways of doing so. Over 90% of marketers now say that social media is important to their business. That's a strong indicator of social media's import and staying power, both in the business world and on the market.

2. New Revenue Streams Are Emerging

As more and more people take to using social media, the companies that own these networking sites are devising new ways to generate revenue. Twitter, for example, just created a brand new revenue stream by purchasing Niche, a sponsored content generator that connects social media stars with brand names. Facebook is making massive investments in satellite and aerospace technology, which advocates say could prove to be incredibly valuable down the road.

3. Big Data Is an Untapped Cash Cow

Social media companies own massive amounts of raw data that could reveal valuable information about things like how people make purchase decisions or what goods and services they may require in the future. Indeed, Facebook ingests approximately 500 times more data each day than the New York Stock Exchange does. "Facebook is sitting on a hidden goldmine if it can figure out a way to monetize the user data of its over one billion user base," tech sector specialist Michael A. Robinson told Money Morning.

4. The Growth Potential Is Huge

For every four minutes spent online, one is spent using social media. And, particularly with mobile device usage on the rise, experts say there's lots of room for growth. Bruno Del Ama, CEO of Global X Funds, says social media is one of the fastest-growing segments in global capital markets. In fact, there are very few companies growing as fast as Facebook, Twitter, LinkedIn, and Yelp. "I think one of the most interesting things about these companies that's misunderstood is these are actually very defensible business models," Del Ama told CNBC. "It's very, very difficult to go after, say, a Facebook or a Twitter. Once they build these networks, it's very difficult to displace them once you have… billions, in the case of Facebook, of users in your network."

5. Mark Cuban Says They're Solid

Social media stocks are not in a bubble, billionaire investor Mark Cuban told CNBC. "It's not 1999 all over again by a long shot," said the Dallas Mavericks owner, who made his fortune as an Internet entrepreneur. Yes, social media companies have large valuations. But unlike the '90s, they have good business models and strong revenue growth, too. That makes them solid long-term investments.

Are you investing in social media stocks? Why or why not?

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