Social media has transformed consumer habits, attracting advertisers with its precise targeting and elevated conversion rates. Investors have found incredible long-term growth potential in a number of standout social media stocks. I’m going to focus on the top three I think provide investors with the best risk-reward upside in this current environment.
Notably, these three stocks should benefit from an upcoming election cycle this year. Estimates range for how big the market for social media advertising could be this year, but a number that I’ve seen thrown around quite a bit is $250 billion. That’s a big pie to be split among most players, though I think the lion’s share of this revenue will go to the three companies on this list, and a few other players.
Let’s dive into why these social media-related companies are strong buys in this current environment.
Meta Platforms (META)
Meta Platforms (NASDAQ:META) appears reasonably valued, trading 14% below my intrinsic value model. Investing in this social media giant now means paying a fair price, and I think growth could continue to pick up for this company over the long-term. That’s not only because of the secular growth trends underpinning social media, and Meta’s standing as the parent company of Facebook. It’s because the company is increasingly focusing on integrating AI into its business model.
Meta’s AI advancements, mainly focused on integrations into Facebook and Instagram, have boosted ad revenue. Yet, investor confidence waned when Meta announced increased AI investment. Recent AI-related initiatives, like partnering with media publishers and AI video generation, show strategic progress. While it’s uncertain if these efforts will enhance profits, they signal positive momentum. This shift towards product-focused monetization could sway market sentiment towards Meta.
Moreover, the company has posted an impressive 38% year-to-date return and has surged 169% since 2019. Net income also doubled, adding more optimism for analysts. I think the analysts are right on the money, labeling this stock as a strong buy right now.
Snap (SNAP)
Snap (NYSE:SNAP) is potentially undervalued in the world of social media stocks. The parent of the popular Snapchat social media app, Snap has narrowed its strategic focus to revenue diversification, engagement, and AR leadership. I think these moves should lead to significant growth in the years to come.
Given the fact that Snapchat reaches nearly 75% of global youth, a potential TikTok ban offers big upside to investors, if a ban truly goes into place. This is likely to be a protracted legal battle, but one in which Snap could end up the winner. This catalyst, in addition to strong Q1 performance and growth opportunities, make Snap an attractive long-term investment.
Now, Snap did faced challenges in Q4 with sluggish ad growth and increased costs, prompting cuts and project delays. However, Q1 saw a rebound fueled by improved ad performance and SMB focus, with a notable 85% surge in SMB advertisers. The recent webinar highlights ad system enhancements that benefit all partners.
Snap revamped ad formats for a cohesive look and better outcomes, focusing on maximizing user engagement. Full-screen displays highlight promotions, with AR ad options expanding for brand exposure. New products like “Total Takeover” and streamlined app downloads enhance advertiser reach and user experience. If you are looking for social media stocks, this is a solid bet.
Alphabet (GOOG)
The parent company of YouTube and a few other social media and advertising-related companies, Alphabet (NASDAQ:GOOG) is a top way for investors to gain exposure to this space.
The company has seen strong growth in its core search and advertising businesses, with YouTube continuing to deliver increasing value in recent quarters. The company’s Q1 report was strong, with Alphabet bringing in 15% revenue growth and 57% bottom-line growth. Indeed, the stock’s 26% year-to-date gain hasn’t kept up with the company’s rate of earnings growth. This means the stock gets cheaper as it rises. That’s a dynamic I like.
With a price-earnings ratio of 27-times, GOOG stock is fairly valued in my eyes. That said, in comparison to other Magnificent 7 names, this is among the cheapest option of the bunch. So, for those seeking growth at a reasonable price right now, this is a top pick of mine as a way to ride social media trends higher over the long-term.
On the date of publication, Chris MacDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.