In today’s Money Morning…adapt or die…the top dog…Web 3.0 is coming…and more…
Yesterday was a bloodbath for social media stocks.
US$165 billion worth of market value was erased in mere hours.
The cause and biggest victim was Snap Inc [NYSE:SNAP] — a company that is most famous for its ageing app: Snapchat.
Outdated software aside, the real issue for Snap is its earnings.
After admitting that EBITDA will be 20–25% lower in their upcoming quarterly results, investors jumped ship. Everyone was dumping the stock as fast as they could.
From a short-term perspective, this makes perfect sense. Wall Street is clearly coming to terms with the Fed’s policy shift, and there’s no room for growth stocks that aren’t actually growing.
But I think what will be far more interesting is seeing where Snap will be in three, five, or 10 years. Because as Facebook — now Meta — has shown, social media isn’t the easy money maker it once was…
Adapt or die
Back in February, when Meta was the catalyst for the tech sell-off, I talked about this same topic. You can still read that article and my thoughts right here.
After all, the reason I bring it up is because it’s panning out exactly as I expected, albeit far faster than I thought it would…
See, of all the social media tycoons, Zuckerberg is certainly the savviest. He may struggle to act like a regular person at times, but he damn well knows what makes them tick. There’s a reason he was able to build and shape the world’s biggest social media platform.
That’s why it was so telling when he finally rebranded his empire to Meta.
Zuckerberg clearly understands that social media, at least traditional social media, is dying. Sure, user growth for a lot of these platforms — even Snap’s — aren’t trending downwards just yet. But they are slowing down and peaking.
I think this is precisely why Twitter is trying to sell its business to Elon Musk. He’s come in, right at the height of their life cycle, and has offered to take on all the challenges involved in keeping it relevant.
Who knows, maybe Musk will actually find a way to reinvent it too.
He has certainly shown an aptitude for innovation in his other companies.
The top dog
Speaking of aptitude, it’s fairly ironic that the most successful social media platform right now is probably TikTok. I say probably because as a privately held business, we obviously don’t have as much data on their metrics.
Anecdotally, though, the evidence is pretty clear.
TikTok, like Instagram before it, has become the platform of choice for the youth. It is filled with and caters for gen Z users. You can, of course, find older people on the app too, it’s just the core demographic.
But appealing to a particular age group isn’t the real secret to TikTok’s success.
No, what really stands out about it is how it delivers content.
If you’ve never seen it before, TikTok essentially operates like an infinitely scrolling feed of videos. Once you’re done watching one clip, you simply scroll up and the next one starts to play.
However, what matters most is the fact that the technology behind TikTok evaluates every user’s tastes. Once you start liking certain types of videos, it will begin to show you more content that is similar to what you already enjoy.
It’s a simple and effective premise, backed up by a complex and incredibly effective algorithm.
The point, though, for investors at least, is that TikTok brought something new to the market.
Web 3.0 is coming
If traditional social media platforms want to continue to thrive, they need to innovate.
That’s why I believe Meta is in a much better position than a lot of the competition. Their plans for the metaverse are certainly ambitious, but at least they have a clear-cut objective.
Compare that to Snap, and the difference is like night and day.
It seems clear, to me at least, that a lot of the big social media/internet companies realise change is on the horizon. As Web 3.0 continues to develop, traditional social media and advertising are going to fall by the wayside.
Now, that doesn’t mean it will happen overnight.
We are still years away from seeing Web 3.0 going mainstream. There is still far too much development needed for it to pop up in the short term.
But, in the meantime, social media will likely continue to churn.
This latest sell-off is just a preview of the struggles that will come if they can’t innovate.
For the companies themselves, though, it should be a wake-up call…
Meta certainly got the message already, that’s why they’re changing. And it’s also why, of the major social media stocks, it’s the only one that I would consider investing in right now.
That doesn’t mean you should go out and buy FB stock right now, however.
We’re still in the midst of a tough bear market that may have a little longer to play out. So don’t be surprised if we see further falls in tech stocks in the weeks and months ahead.
But once sentiment shifts again and growth stocks are back in vogue, then we shall see.
Because while I won’t be surprised if Snap struggles to remain relevant, I do think companies that are pushing new boundaries, like Meta, will thrive.
For investors, that is going to create an opportunity for a potential tech reordering.
And that is when the big gains will truly come…
Regards,
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Ryan Clarkson-Ledward,
Editor, Money Morning
Ryan is also co-editor of Exponential Stock Investor, a stock tipping newsletter that hunts down promising small-cap stocks. For information on how to subscribe and see what Ryan’s telling subscribers right now, click here.
