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Stocks  | July 8, 2020

On the surface, social media stocks fundamentally appear poised to perform relatively well amid the novel coronavirus pandemic. With most forms of commerce and business services now shifting online, there has never been a more important time for companies to be relevant on the internet.

This dynamic bodes well for the broader advertisement front. While I can imagine industries such as roadside billboards not doing so well during the worst of this crisis – and it may have a long road to recovery still – online advertisements are now crucial for success. Of course, this should theoretically translate to significant upside profits for social media stocks.

Also, with the quarantines earlier this year, many people felt incredibly isolated. Even if you were lucky enough to work remotely, there’s an intangible benefit to physical interactions, whether that’s in the office or out in public. Additionally, many milestone events, such as weddings and graduation ceremonies, were either cancelled or heavily mitigated. Naturally, social media companies connect people with maximum social distancing.

With all the positives, you may be gung-ho on social media stocks. However, investors need to be careful with individual names. For one thing, the current social unrest has put a spotlight on the power and influence of social media firms. Many advocates for racial equity and justice want social networks to actively censor hate content. But others state that this amounts to Big Brother-style censorship and represents a slippery slope.

Further, many social media stocks are levered to the consumer economy. But should this present resurgence of the coronavirus worsens considerably, they could face substantial downside. Again, you want to be very selective in this industry. Here are the companies to either buy or sell:

  • Amazon (NASDAQ:AMZN)
  • Twitter (NYSE:TWTR)
  • Facebook (NASDAQ:FB)
  • Groupon (NASDAQ:GRPN)
  • Yelp (NYSE:YELP)
  • Momo (NASDAQ:MOMO)
  • Weibo (NASDAQ:WB)

Finally, we can’t forget that we’re in a pivotal election year. Therefore, even the most fundamentally solid company in this space could incur unforeseen trading action. But if you’ve got the ironclad stomach, here are eight social media stocks to either buy or sell.

Amazon (AMZN)

As much as I love Amazon, I really didn’t want to start off my list of social media stocks to buy with it. Because people primarily associate AMZN stock with e-commerce, it’s not a pure play for this industry. Nevertheless, in my opinion, it’s the only name which I’m comfortable suggesting a decidedly bullish stance.

Frankly, this is because AMZN stock is relatively insulated from the fierce political and social divide. In other platforms, you’ll see millions of people go at it on a daily basis. But with Amazon, we can all come together because e-commerce is universally loved for its convenience, swiftness, and cost effectiveness.

Also, Amazon owns Twitch, the video gaming-centric streaming platform. Personally, I’ve never understood the appeal of Twitch. Unlike professional sports, anyone can go buy a video game and start playing. Why watch someone else play a video game?

Despite my skepticism, Twitch has resonated with its core audience. Plus, video games were very popular during the first months of the coronavirus epidemic. If this current resurgence gets worse, video game sales could jump higher, which would likely benefit AMZN stock.

Alphabet (GOOG, GOOGL)

If you want to have any success in the broader retail industry, you’ve got to have a presence on Alphabet’s Google search engine. Essentially, Alphabet owns the internet. Naturally, this de facto ownership has attracted international regulators looking to impose antitrust legislation. Still, GOOGL stock keeps chugging along.

Like Amazon above, what makes Alphabet such a formidable force is that it’s levered to multiple relevant businesses. Through its acquisition of YouTube, the company is also a dominant player among social media stocks. The platform has always been popular. However, with the coronavirus, people who were stuck at home turned to YouTube for free, ad-driven content.

As well, GOOG stock is basically at the forefront of the current political and social debate. Many have voiced their opinions about key issues on YouTube, which makes it an attractive advertising hub for progressive organizations.

At the same time, YouTube has sparked controversy for censoring far-right content. Ultimately, this action brings up an uncomfortable question: who decides what is socially inappropriate content?

This controversy may be contributing to the less-than-stellar price action of GOOGL stock. But should shares correct, I would be interested in pick them up on discount.

Twitter (TWTR)

Another company that finds itself in the censorship debate is Twitter. A favorite among celebrities and even the President himself, TWTR stock enjoyed a strong showing following its March doldrums. However, Twitter hasn’t been controversy free, with the company deciding to take down President Trump’s tweet about looters because it glorified violence.

Not surprisingly, this move angered conservatives, who feel that U.S.-based social media stocks have a decidedly liberal bias. But to be fair, Twitter isn’t exactly a favorite among those in the left. After all, Twitter allows Trump to continue ranting and raving without putting up much of a fuss.

Despite its problems, I still like TWTR stock, especially after its corrective spell in the second half of June. Mostly, this is because Twitter aligns well with youth culture. According to the Pew Research Center, younger Americans get their news mostly through social media and online news sources. But for adults under 30, social media plays the dominant role in news consumption.

Facebook (FB)

I’m just going to say it. Technically, Facebook may be the most precarious position compared to other social media stocks to buy. Basically, FB stock, despite incurring much choppiness, has been flat for the last several weeks. Therefore, bulls and bears are negotiating fiercely but with no resolution yet.

Be warned: if you’re going to buy FB stock now, brace yourself for turbulence.

Moreover, Facebook CEO Mark Zuckerberg drew anger within his own ranks when he stated that social networks should not fact check what politicians post. That didn’t sit well with young Americans, who are more diverse than prior generations. Also, many harbor bitterness for Facebook’s role in the Cambridge Analytica scandal, associating the dissemination of false information with helping Trump to an unlikely victory in 2016.

I’m not going to take away from the fact that based on the headlines, FB is one of the ugliest social media stocks. However, over the long run, I’m still bullish on Facebook.

We can argue all we want about the company’s role in shaping the political discourse. But at the end of the day, there’s no other social network with the reach and utility of Facebook. Just be prepared for a pullback in the nearer term.

Groupon (GRPN)

Before the pandemic, analysts argued whether Groupon represented good value. Well off from its highs, GRPN stock seemed cheap. Unfortunately, the novel coronavirus is, in my opinion, removing doubt about this narrative. If you can’t stomach volatility, I would avoid Groupon.

First, Groupon depends on group discounts, as in positive consumer sentiment. But this catalyst will go out the window quickly if this pandemic worsens. Given the rising new daily infections along with hospitalization rates, the situation doesn’t look great.

Now, I’m not saying that this recent outbreak will get worse – I have no idea. But what we do know is that initial weekly jobless claims continue to number in the millions. For the week ending June 27, nearly 1.43 million Americans requested unemployment benefits, higher than the consensus target of 1.38 million. Obviously, this implies weakening consumer sentiment for discretionary purchases, which augurs poorly for GRPN stock.

Finally, more companies can adopt direct-to-consumer business models to save costs and consolidate their brand messaging. If that happens, Groupon will become steadily less relevant.

Yelp (YELP)

Out of all the underlying businesses associated with the social media stocks on this list, I find Yelp to be the most helpful. Aggregating multiple consumer reviews, I’m better able to decide where I spend my money and where I don’t. Typically, such utility makes for a solid investment case. But there are some headwinds here that make YELP stock less than desirable.

First, up until late June, data from Yelp revealed that the majority of businesses that closed because of the coronavirus pandemic remained shuttered. And while that has nothing to do with Yelp directly, it nevertheless is not helpful for YELP stock. Logically, with so many businesses still having their doors closed, consumer reviews don’t mean much. This may translate to fewer listings and lower ad revenue.

Second, Yelp has had difficulty in the past producing positive net income. While this isn’t the only concern in the world, investors want to see returns, especially in this new normal.

To its credit, the company is doing what it can, including the introduction of a feature that allows users to find self-identified Black-owned businesses. But it will need to convert this and other initiatives into positive earnings, which is where it lacks credibility.

Momo (MOMO)

One of the strangest social media stocks, Momo is a tough company to categorize. On the surface, it’s a platform to chat with both friends and strangers. But this free-for-all gives MOMO stock exposure to the online dating scene. In addition, the company has incorporated mobile games for its many subscribers to enjoy. Thus, it’s a jack of all trades, but does it master any of them?

Looking at the technical chart for MOMO stock, the answer is a clear no. Unlike other social media stocks, MOMO only briefly witnessed an upside move from its March lows. Since the end of April, shares have been trading inside a bearish channel that seems to be worsening with time.

Fundamentally, the company is losing credibility. Supposedly, MOMO is a growth stock. But it hasn’t been doing much growth over the last two years. In its most recent earnings report, revenue declined nearly 8% from the year-ago level.

Also, it doesn’t help that Momo is a Chinese company. Adding geopolitical risks to an already embattled stock isn’t what most investors want right now.

Weibo (WB)

If we weren’t clashing heads with China, Weibo may make for an interesting case among social media stocks. As things stand now, WB stock is risky. Like its compatriot Momo, Weibo is suffering from a poor technical posture. Though not as ugly as Momo, WB similarly only saw a brief uptick from the March doldrums.

Also, like Momo, Weibo’s fundamentals are losing credibility with prospective buyers. During its first few years, WB was a true growth stock, experiencing tremendous growth. In the last two years, the company has looked rather pedestrian. Worse yet, in its most recent quarter, revenue declined by 19% on a year-over-year basis.

Finally, let’s go back to the China narrative. Politically, a huge segment of American society clearly supports President Trump and want to see the Asian power punished. Then, you have to consider the case of Luckin Coffee (OTCMKTS:LKNCY), which defrauded investors on its way to prominence.

Given the heightened state of affairs, I have a hard time trusting WB stock.

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