What is the future for social media stocks?
It is “anyone’s guess” what Elon Musk will do as the new owner of Twitter but Meta is still showing promise after a 70% share price drop, according to Platinum.
Speaking to Money Management, Platinum international brands fund manager, James Halse, said the fund had held both stocks in its portfolio.
It added a 3.2% weighting to Twitter in July on a merger arbitrage basis after the sell-off caused when Musk tried to back out of the deal and had since sold it when the company de-listed last week. This was not the firm’s usual strategy but it felt the risk/reward trade-off in that specific situation was “enticing” as the acquisition was highly likely to go ahead.
“The courts aren’t very tolerant of people trying to back out of deals, the agreement was watertight so we felt confident Musk would not be allowed to back out.
“We hadn’t bought before as we felt Twitter hasn’t been a great business, they haven’t been able to monetise it as they have less data on users. It’s anyone guess what Musk wants to do with it now, he’s the richest man in the world.”
For Meta, the fund had a 3.8% weighting and Halse said he was disappointed by its performance but was optimistic on the long-term outlook.
Meta shares were down by 71% since the start of the year to 02 November following disappointing earnings results, slowing sales and declining revenue. This was caused by problems regarding targeted advertising and founder Mark Zuckerberg’s spending push into the Metaverse.
Halse said: “Meta has been a long-standing position that we got wrong. It has been a perfect storm for the company; one issue could have been OK but there’s been lots all at once.
“E-commerce has slowed since the pandemic ended so companies are spending less on advertising so they are getting less advertising revenue and there is increasing advertising inventory as TikTok has taken market share. They are also working out how to monetise Reels as there is a transition away from the newsfeed and onto Reels which is a new format.
“The Metaverse could be powerful but that is very uncertain. Zuckerberg can definitely pull it off but it’s about human behaviour, it’s very difficult to quantify, will people use it and get on board? We are not ascribing much value to that.”
However, he felt the valuation appeared cheap as the underlying business looked strong and there were still some positives attached to the business as it had successfully weathered transitions before.
Regarding the future for social media as an investment sector, he said it had been on the down for several years.
“There are concerns about people’s mental health, about data privacy, there’s been a lot of issues for these companies and now there is the problem of digital advertising. It is no longer the huge growth industry that it once was.”
AUTHOR
Laura Dew
Recommended for you
Amid a growing appetite for alternatives, investment executives have shared questions advisers should consider when selecting a private markets product compared to their listed counterparts.
Chief executive Maria Lykouras is set to exit JBWere as the bank confirms it is “evolving” its operations for high-net-worth clients.
Bennelong Funds Management chief executive John Burke has told Money Management that the firm is seeking to invest in boutiques in two specific asset classes as it identifies gaps in its product range.
Responsible investment performance concerns have lessened as the market hits $1.6 trillion in AUM, according to RIAA’s annual report, but greenwashing fears among asset managers are on the rise.
