It seems that investors have finally come to the realization that social media stocks are essentially just media stocks.
This means that despite their higher growth rates, social media companies are still subject to fickle shifts in advertising budgets and user behavior, just like traditional media firms such as television networks and newspapers. Categorizing social media platforms as tech stocks may be a misnomer.
Meta warned in February of a potential $10 billion hit to its revenue and Zuckerberg said during the company’s first quarter earnings call with analysts in late April that the iOS changes are “a meaningful headwind” for Meta and its rivals.
The rise of TikTok is hurting social media stocks
Competition is an issue, too. Social media companies live and die by their user growth metrics. Privately held TikTok now has all the momentum, particularly with the younger Millennial and Gen Z subscribers that advertisers crave.
Morningstar analyst Ali Mogharabi said in a report following Alphabet’s first quarter earnings in late April that one reason YouTube’s ad revenue growth “was a bit disappointing,” was in part due to “increased competition from Meta, Snap, Twitter, and Pinterest, plus newcomers like TikTok.”
Big brands are increasingly embracing TikTok as well, which could be to the detriment of other social media firms.
Freda said the company quickly amassed more than 153 million views for the product on the video sharing platform and that sales “far exceeded our expectations in the quarter.”
Madison Avenue advertising agencies have taken notice too.
In other words, if the hit TV show “Mad Men” was remade for 2022, modern day Don Drapers would probably be working mainly on viral TikTok campaigns for their clients. That’s not good news for Meta, Snapchat and Twitter.