The 21st century boom in technology has changed the way we work and play. Whether staying in touch with a friend, showing off the latest piece of craftwork, looking for love, or a good dentist, social media is now a part of the fabric of our lives.
Entrepreneurs have scrambled to meet these needs, creating networks that connect us with family and friends, allow us to share interests, and entertain, inform and amuse. More people than ever before have accounts on social media platforms like Instagram, Snapchat, Pinterest, Facebook
Naturally, this drives many users to think about trading and investing in the enterprises that run this vast array of social media platforms. Happily, in many instances they are following in the footsteps of legendary investor Warren Buffet, who famously only invests in businesses he understands.
Investors scramble for social media stock
As the world approaches the 20-year anniversary of the dotcom crash, investors have a very different view of the social media space. In the year 2000, investors scrambled to buy into the mania for the new technology, and the term ‘social media‘ was unknown. Companies that had no revenue and the sketchiest business plans saw their share prices soar, based on clicks, customer numbers and disruption potential. Many of these speculative businesses failed.
Winners have emerged, and there is a constant stream of new entrants. Technology entrepreneurs have made enormous amounts of money in industries that did not previously exist and tech stocks now dominate major stock exchanges. Facebook is one of the largest companies in the world, with a value of more than $600 billion. Where earnings are solid, and there is a stronger track record, investors can choose stocks on more reliable metrics than they did at the turn of the century.
In contrast, some early movers like MySpace, MSN Messenger and Bebo have disappeared. More recently, Alphabet
turned out the lights on the failing Google+. Even savvy and cash-rich companies are not guaranteed business success in social enterprises.
Trade our Social Media basket
These contrasting fortunes present investors and traders with a challenge. How can they capture the potential opportunities these companies offer, while reducing the risks associated with failing business models?
Diversification is one of the most powerful risk-management tools available to investors. Spreading across a number of stocks reduces the overall impact if one of them fails. Another approach is to invest in well-established and larger companies – so-called blue-chips.
Buying (or selling) a basket of higher quality social media stocks
combines these two risk-reduction techniques. The ability to do so in a single transaction is not only more convenient, it also reduces transaction costs.
Traders and investors can take an interest in 12 social media-related stocks, including Facebook, Twitter, Snap
, Match Group, Pinterest and Yelp
, through the CMC Social Media basket. Many of these companies also manage risk through diversification. This means the basket of social media stocks
gives a stake in the headline businesses of these companies, and also their subsidiaries such as Instagram, Messenger, Whatsapp, Oculus, Periscope, Snapchat, OKCupid, Plenty of Fish, Hinge, and Tinder.
The importance of social media to our daily lives is enabled by the great leap forward in technology. Ongoing technological innovation also allows online trading platforms to offer increasing choice and power to individual and institutional investors. The creation of the Social Media basket means traders and investors can now take a position in the technology they use every day.
Social media basket constituents
Alphabet Inc – Class A (10% weighting)
Google-owner Alphabet owns the video-sharing phenomenon YouTube, after Google paid $1.65bn to acquire it in 2006.
Facebook (10% weighting)
The social networking giant, Facebook, was launched back in 2004, and famously created by Harvard university students including Mark Zuckerberg.
InterActiveCorp (IAC) is a leading US media and internet company, comprising more than 150 worldwide brands and products, including video-sharing site Vimeo. It also has a majority ownership of Match Group, whose portfolio includes dating brands Tinder, Match and Plenty of Fish.
Match Group (10% weighting)
The pioneer of online dating, US internet firm Match owns a host of well-known brands, including Hinge, OKCupid, Plenty of Fish, Tinder and Match.com.
Pinterest (10% weighting)
Launched in 2010, Pinterest is a visual discovery tool, helping people to share ideas and search for inspiration across various interests. Users can search for a topic they’re interested in and pin an idea to their own board.
Twitter (10% weighting)
Created in 2006, Twitter has become a hugely popular tool with 145m active daily users, who can use up to 280 characters to communicate and interact with other users. The social media platform has become an increasingly popular source for breaking news.
Why trade on social media?
The social media industry has taken off in the 21st century, with a host of start-ups launched in the early part of the century now huge, household names, providing services to millions of people worldwide.
The bullish stance
- Traders and investors can trade in companies and technology they are familiar with and use on a daily basis
- Social media has become increasingly important to people’s daily lives across the globe, facilitated by fast-moving technological advances
- Ongoing technological innovation also allows online trading platforms to offer increasing choice
The pessimistic attitude
- Social media has received negative press at times due to facilitating certain organisations and allowing them to spread their message, such as far-right groups and terrorist organisations
- Similarly, some social platforms have faced criticism for not closing down some accounts quickly enough, and there are question marks over how types of abuse, such as racism, and ‘trolling’ can be completely stamped out
- There are environmental concerns around the increasing global emissions produced by powering the internet
- A number of start-ups have failed to make the grade and fallen by the wayside, and there remains a possibility that certain groups of people will turn away from social media if they feel it becomes tiresome and monotonous
Trade on share baskets
Get exposure to trending industry themes with share baskets:
Find out more about the Social Media basket
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