Marketwired Blog

Is Social Media Losing its Appeal for Investors?

Trying to publicly invest in the latest social media service used to be all the rage as fast-growing companies such as Facebook filed for IPOs.

After bad press and sagging share prices, it seems a growing number of people are wary of trying to mine gold from social networks.

Did the fanciful, wishing thinking just become too much of a contrast to reality?

Most likely, this approach will prove to be too premature when you consider the billions of dollars and dozens of existing revenue stream, many of which could drip money for years and years.

Facebook, GroupOn and Zynga are great examples of stocks which investors have soured on due to disappointing results and, as important, a failure to meet growth expectations.

For the optimist, this might be one of those stories where early shareholders suffer, while people who jump on the social bandwagon later prosper upon investing in companies that have more mature business models and revenue streams.

Two reasons for the disappointing performance of publicly-traded social media companies are slower growth or even the plateau user growth and spending on user acquisitions.

In regards to user stagnation, this was bound to happen with a crowded and growing field of networks. Facebook might have peaked with 900 million users, and that gaudy number might have nowhere to go but down.

Facebook’s purchase of Instagram for $1-billion must have sent shivers through the investor community. It’s natural for companies at the top to buy everything in their path, but it is not always the best strategy.

Would you invest in a social media company? Or are you waiting for the next wave?

For more on the fast-fizzling social media IPO market, check out this Wall St. Journal story.

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1 Comment on Is Social Media Losing its Appeal for Investors?

Gino said : Guest Report 6 years ago

Depends on how the site is monetized. Facebook did a bad job of monetizing to a point where people just totally ignored their ads and they became even more ignored because so many of the ads were spam and scams. The other big problem is putting a value on user numbers. Facebook has a huge problem with fake accounts, duplicate account and INACTIVE accounts. That 900 million users is not a true number of real active users by any means.

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