U.S. investors are seeing increased interest around social media stocks. Much of this interest stems from the an increasing trend of TikTok bans, after the EU parliament prohibited the use of the Chinese social media app across three of its institutions and advised EU personnel to remove the app from their personal devices due to cybersecurity concerns.
Thus, in response to this news, social media stocks in the US experienced a surge in valuations, with companies like Snap (NYSE:SNAP) seeing double-digit gains.
Will TikTok’s ban affect other governments to take this social media network down? Time will tell. However, what’s certain is that while some near-term buying pressure for some of these embattled social media stocks is nice, these are also generally companies with their own sets of issues.
Plainly-put, social media companies are facing myriad challenges, which have resulted in declining share prices this year. The Global X Social Media ETF (NASDAQ:SOCL), which tracks the performance of global social media stocks, has experienced a decline of over 30%. Accordingly, given the unstable situation in the stock market, the geopolitical situation, and the internal performance of some companies, there are certain social media stocks investors are better off avoiding right now.
The recent aforementioned spike in Snap’s stock price amid TikTok’s European ban may be temporary. Due to factors like declining digital advertising spending and Apple’s (NASDAQ:AAPL) recent crackdown on ad tracking in iOS apps, Snapchat’s valuation has plummeted in 2022. These headwinds have resulted in a significant decrease in Snapchat’s market capitalization, which now stands at $18 billion, far below its previous high of $136 billion.
The company ended the fourth quarter of the year with a net loss of $288 million against a profit of $22.5 million a year earlier. This is the fourth consecutive quarter of losses the company has seen. As a result, last year’s total loss amounted to a whopping $1.43 billion.
Additionally, revenue growth hasn’t been outstanding over the past year. For full year 2022, revenue grew by only 12%. This number is worse than the company expected, and is much worse than what many investors were expecting.
Snap attributed this slow growth rate to a rapid decline in online advertising revenue, as well as unfavorable economic conditions. Additionally, the company is predicting that Q1 revenue growth will only range from 2% to 10%. Thus, this is a loss-producing company with little growth to show for its efforts. There are better options elsewhere.
Among social media stocks, Amazon’s (NASDAQ:AMZN) Twitch may have the strongest headwinds.
Amazon acquired Twitch in 2014 in a bid to boost the company’s exposure to the gaming sector. However, general declines seen across the gaming sector since an incredible post-pandemic rally have hurt this subsidiary’s outlook.
Thus, Twitch’s problems are just one of many concerns Amazon investors are putting up with right now. The internal struggles of Amazon’s other divisions dwarf those of Twitch. But in the social media space, Twitch’s under-performance has been noted (at least internally by Amazon’s management team).
Amazon announced, in its recent layoff of 18,000 employees, that 600 jobs would be disappearing from its Twitch division. On March 20, Twitch announced an additional 400 employees would be laid off. Adding fuel to the fire was the departure of Twitch co-founder Emmet Shire, who left the company after being its CEO for 16 years.
Despite being the leader in the live-streaming industry, Twitch, along with other major platforms such as Facebook Gaming and YouTube Live, experienced a decline in the total hours watched over the past year. According to recent statistics, only a small percentage (11-13%) of Millennials, Gen Z, and Gen X have visited Twitch in the last three months. Thus, this is a social media platform I’d steer clear of, and is another reason I’m avoiding AMZN stock right now.
Unlike other major social media outlets, media coverage of Yelp (NYSE:YELP) has declined significantly in recent times. According to financial data analysts from Tip Ranks, the stock has garnered natural sentiment among investors, while other social media giants are seeing very bullish sentiment build.
Why is that?
Well, the company was hit hard as a result of the Covid-19 pandemic. The company’s business model, which relies on in-person dining and experiences, obviously took a hit.
That said, while the economy has reopened, Yelp hasn’t seen the kind of resurgence many investors were hoping for. The company’s recent Q4 results did note an increase in profitability. However, I think that the structural changes made to the economy as a result of the pandemic make Yelp a social media stock to sell.
On the date of publication, Julia Magas 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.