Social media has defined an entire generation. It’s changed how people interact with each other and businesses. Some companies have used social media platforms to attract new customers and go from unknown brands to global sensations.
These platforms offer incredible exposure for individuals, small businesses, ideas and events. It turns out many of these same companies are delivering impressive returns for their shareholders. Social media companies make most of their money through advertisements. Businesses pay to have their message and product displayed on other users’ feeds.
Many companies regularly invest in social media advertising, since it’s hard to beat the level of targeting that these platforms provide. Small businesses can filter their target audience across various parameters, such as locations and interests. Some social networks have been more successful than others.
If you want to profit from this industry, you may want to accumulate shares in these three social media stocks.
Meta Platforms (META)
Meta Platforms (NASDAQ:META) has three top-tier social networks under its corporate umbrella: Facebook, Instagram and WhatsApp. The social media giant knows how to grab and seep people’s attention through these platforms.
Each of these social networks makes a lot of money, and profit margins have been climbing beyond 30% amid the company’s cost cutting efforts.
The social media giant’s headcount is down by 10% year-over-year, but revenue is up by 27%. It demonstrates that Meta Platforms can run smoothly with a smaller team. Furthermore, net income more than doubled, resulting in significant profit margin expansion.
Meta Platforms also trades at a reasonable 29.6 P/E ratio due to its rising profits. Investors also get a 0.40% yield at current levels. Meta Platforms offered its first dividend in the end of 2023, so investors should expect a double-digit growth rate for several years. Shares are up by 46% year-to-date and have gained 178% over the past five years.
Alphabet (GOOG, GOOGL)
Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) owns the most recognizable video platform. Billions of people use YouTube every month and can end up staying on the site for several hours at a time. This amount of attention results in numerous ad placements that boost the company’s revenue.
After a slow 2022, Alphabet is back in growth mode. Revenue increased by 15% year-over-year in Q1 2024 while net income was up by 57%. Similarly to Meta Platforms, Alphabet is also cutting its costs and recently announced its first dividend. Alphabet is a bit later to the game of cost cutting, so profit margins should continue to expand. Net profit margins came in at 29.4% during the quarter.
There’s more to Alphabet than Google and YouTube. The company’s cloud platform now brings in more than 10% of total revenue and should receive a boost as artificial intelligence increases the demand for cloud computing. Alphabet can also tap into additional revenue opportunities with Gemini, its AI large language model.
Microsoft (MSFT)
The tech conglomerate has many businesses under its corporate umbrella. Microsoft (NASDAQ:MSFT) makes more than half of its revenue from cloud computing. It also has business software, Xbox, advertising, search, devices and other segments.
Microsoft also owns LinkedIn, a business-oriented social network with more than one billion members in more than 200 countries and territories. LinkedIn has made several efforts to ramp up advertising revenue and recently incorporated games into its platform. The efforts should keep people on LinkedIn longer.
Microsoft’s overall revenue increased by 17% year-over-year amid a strong performance from Microsoft Cloud. This segment’s sales grew by 23%. LinkedIn’s growth was a bit below both of those marks, but revenue was still up by a respectable 10% for the social network.
The social network’s parent company has delivered exceptional returns for long-term investors. Shares are up by 19% year-to-date and have gained 233% over the past five years. The stock currently has a 0.75% yield and a 38 P/E ratio.
On this date of publication, Marc Guberti held long positions in GOOG and MSFT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.comPublishing Guidelines.