Last week, Meta Platforms‘ 26% drop in a single day caught the attention of investors. But I realised Meta was not the only social media stock that got hit badly. Here’re 4 more social media stocks whose prices are bleeding, but may offer a good entry point:
1. Roblox (NYSE: RBLX)
Roblox, a favourite among the school goers today, dropped 26% in a day too. Seems like 26% is a magic number.
The reasons given were that it missed the revenue by $2m and that the earnings have slowed down. Investors fear the allure of the platform has declined due to the reopening of the economy.
Of course, not all is doom and gloom.
The overall results were still pretty good. Roblox’s revenue increased 108% in 2021 and free cash flow was positive and increased to half a billion. This means that they no longer need to raise money as their operations are able to sustain the business on its own.
Here’s what they do:
2. Snap Inc (NYSE: SNAP)
Snap has reported positive free cash flow that is 3x the amount achieved in the last quarter. This is the first time they had reported consecutive positive free cash flow quarters.
Similar to Roblox, they are self-sustainable now. Snap has turned profitable in the latest quarter too.
Although Snap share price jumped 58% on this good news, it is still down 15% since the start of 2022. This is worse than the NASDAQ Composite (-13%).
3. Twitter (NYSE: TWTR)
Twitter grew its revenue by 37% but remains loss-making and has a negative free cash flow as of the latest earnings. It is down 17% since the start of 2022.
4. Pinterest (NYSE: PINS)
Pinterest grew its revenue by 52% and has a positive cash flow!
Even so, its share price has declined 32% since the start of 2022.
Prices down but growth still up
Somehow, the general sentiment towards social media stocks was bad. Especially if we look at the comparative performances against NASDAQ (-13%):
- Snap: -15%
- Twitter: -17%
- Pinterest: -32%
- Meta Platforms: -39%
- Roblox: -45%
Overall, the social media platforms have exhibited good growth and majority of them have achieved a significant milestone: generating positive free cash flow and some turned profitable.
However, these were ignored.
I think there are three reasons.
First, the valuation reset due to pending higher interest rates – many growth stocks should trade lower as their future value will be discounted by a larger amount to the present day.
Second, the increase in social media competition would mean a smaller pie for everybody. Investors project slower growth and bigger losses as they spend more to compete.
Third, the degree of privacy protection may be enhanced going forward (Android is increasing privacy options too) and this trend will impact the social media platforms because they all rely on tracking to make ads more effective.
It is definitely harder to analyse the social media platform industry now, it has evolved from a monopoly to an oligopoly. This alone will make the industry less attractive according to Porter’s Five Forces.
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