The Only Two Social Media Stocks Worth Buying – and the Numbers That Prove It

social-media-stocks

When it comes to social media stocks to invest in, the potential for massive profits - like the 140% return Facebook (Nasdaq: FB) has seen over the last nine months - is tempered by wariness over mass hype and the real risk of failure.

For instance, two recent, hyped social media initial public offerings (IPOs) have both dipped below their initial offering price. Social media mobile gaming firm King Digital Entertainment Plc (NYSE: KING) is 10.63% under its March 2014 initial offering price. KING stock was trading slightly up 0.77% at $17 per share on Wednesday afternoon.

And Twitter Inc. (NYSE: TWTR) is nearly 14% under its November 2013 initial offering price and has fallen 39.28% so far in 2014. It was down as much as 14.22% in premarket trading this morning (Wednesday) after it released a troubling Q1 2014 earnings report after the bell on Tuesday. TWTR shares were trading down 10.72% at $38.05 per share as of 1:45 p.m. EDT Wednesday.

On top of these, even Facebook stock experienced a volatile ride after its infamously disastrous May 2012 IPO, despite its ultimate recent gains. Through mid-2013, Facebook shares slumped 35% under its initial offering price.

Investors are always faced with a "reward versus risk" dilemma, but due to the sector's volatility, the predicament is heightened when it comes to social media stocks.

That's why we asked Money Morning Defense & Tech Specialist Michael A. Robinson if there are any social media stocks worth the risk. Robinson is a 34-year Silicon Valley veteran and one of the top technology financial analysts working today.

He answered our question by naming two social media stocks that are among his favorite investments right now. Both have proven track records and massive upside potential - a way to "beat" the reward versus risk dilemma...

Two Social Media Stocks to Invest in Now

Social Media Stock No. 1: Facebook Inc. (Nasdaq: FB)

Facebook stock is up 138.84% since July 2013 - a sharp turnaround from its 35% fall under its May 2012 IPO price. So what's the company doing right?

"One thing about [Facebook founder and CEO] Mark Zuckerberg is, he finds out what's wrong with his company, and he fixes it. He doesn't let his ego get in the way of success," Robinson said.

Even though Facebook's user growth rate has slowed, the company has an enormous active user base that's still growing. In its Q1 2014 earnings release last Wednesday, Facebook revealed a 21% increase in daily active users compared to the same quarter a year ago. Active monthly users shot up 15% year over year to 1.28 billion, and mobile monthly active users increased by 34% to 1.01 billion year over year. These whopping user base numbers alone make Facebook the poster child for mobile and online advertisers.

"Facebook has done a great job in going mobile," Robinson said. "At the end of last year's fourth quarter, active mobile users climbed 39% to 945 million, or 77% of its user base. And this latest quarter marks yet another huge mobile user base gain."

FB's successful transition into mobile is a huge reason its financials are so strong right now.

With a market cap of $151.36 billion, Facebook trades at roughly $59 per share. It has operating margins of 37% and a 9.46% return on assets. It had $11.5 billion in cash on hand as of late January, and the company generated $2.86 billion in free cash flow in 2013.

Facebook managed to beat Wall Street's Q1 2014 earnings per share (EPS) estimates by a whopping $0.10, coming in at $0.34 per share on revenue of $2.5 billion.

"At this rate, earnings - and FB stock itself - could double in less than 2.5 years," Robinson said.

Other favorable numbers that came out of April's earnings were advertising sales. Total revenue from advertising gained 82% year-on-year to hit $2.27 billion. Mobile ad revenue, which made up 59% of all ad revenue, gained 30% from the same period last year.

In terms of future growth, there's a tactic that Facebook CEO Mark Zuckerberg has recently been putting to use that makes Robinson very confident about Facebook stock in the long-term...

In 2014, Zuckerberg has been acquiring companies like crazy.

In February, Facebook announced it would buy messaging service WhatsApp for $19 billion. Its decision to spend that amount of money on a five-year-old startup with only 55 employees and a 2013 revenue of around $20 million appeared absurd to some industry followers.
But Robinson anticipates Zuckerberg - and FB investors - will have the last laugh.

"The WhatsApp acquisition could bring billions in new sales to Facebook in a short amount of time," Robinson said. "If it just captured $1 a month per user in fees, ads and other services, Facebook would post around $5.4 billion in new sales on top of 2013 revenue of $7.8 billion, itself a 55% yearly increase."

Early March brought a $60 million acquisition of drone (atmospheric satellite) maker Titan Aerospace, a move aimed to bring Internet connectivity to new parts of the world.

And later the same month, Facebook acquired virtual-reality goggle maker Oculus VR Inc. in a $2 billion deal. FB management said the move was aimed to develop a "next-gen" platform for social media users.

Finally, there's a side to Facebook worth mentioning because it could be so profitable in years to come: Big Data analytics.

"Facebook is sitting on a hidden goldmine if it can figure out a way to monetize the user data of its over one billion user base," Robinson said.

Robinson recommends Facebook as one of the top social media stocks to buy; yet, despite all his accolades, this other social media giant is Robinson's favorite pick right now...

Social Media Stock No. 2: LinkedIn Corp. (NYSE: LNKD)

"Both Facebook and LinkedIn are 'sticky sites' - they get their hooks in you and it's difficult to get out. But LinkedIn is my favorite social media stock," Robinson said. "I like LinkedIn's business model because the firm has become an indispensable tool for professionals. Basically, these days corporate recruiters can't really do their jobs without using this online format."

LinkedIn stock has returned 62.42% to investors since its public debut. With a market cap of $18.24 billion, LNKD's share price reached $240 after enjoying a two-year run that added 160%. It was able to grow its quarterly earnings by 33%.

LinkedIn has more than 277 million members around the globe - a 37% increase year over year. And the company has the potential for much more growth, with three billion members in the workforce worldwide it can tap into. Forbes predicts the company will reach past the 500 million mark in average monthly unique visitors by 2020.

"LinkedIn already has a huge global footprint. I'd like to see higher profit margins, but the company has been growing quickly - an 86% increase in sales over the past three years," Robinson said.

LNKD shares have slumped so far in 2014, down 30.27% to $151.11 per share. Some of the decline has been attributed to its missing consensus estimates for Q4 2013, and a lackluster 2014 outlook. In addition, short-term initiatives are putting pressure on LinkedIn's bottom line.

But LinkedIn's decline gives investors a unique chance to buy shares at a discount. In fact, Robinson believes that at its current price, LNKD is one of the best social media stocks to buy right now.

"LinkedIn got banged up recently, but its profit and sales growth are amazing," Robinson said.
"This is a discount buy."

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