Social media stocks can come and go just as fast as the memes their platforms support. While the early days of social media stocks provided potential for huge growth akin to the dot-com bubble, many of these publicly traded companies are now faltering thanks to expanded regulatory action, increased competition and dwindling customer demand. The once-trendy darlings of the market are now experiencing a shift in sentiment, as the risks associated with these stocks loom larger than ever. Investors holding positions in this sector need to pay attention to what social media stocks to sell before they start trending downward.
There are compelling reasons why selling certain social media stocks may be the prudent move for investors seeking stability in their portfolios. Upside is limited with the three social media companies discussed here due to the overall risks they pose to investors. By divesting these stocks, investors can free up space in their portfolio for far more profitable options, like Meta (NASDAQ:META).
Here are three social media stocks to sell as, sometimes, unfollowing is the wisest investment strategy.
Weibo (WB)
Weibo (NASDAQ:WB) is a Chinese microblogging platform facing challenges due to the country’s economic slowdown and competition. It reported a forward revenue growth estimate of only 13% and expects negative 7% EBITDA growth, indicating a tough road ahead. The intensifying competition in the Chinese social media landscape, coupled with evolving user preferences, poses challenges for Weibo’s growth prospects which have already started impacting its advertising revenue and market share.
Weibo is expected to release its Q4 2023 earnings statement on Feb. 27. In the meantime, reviewing the Q3 numbers sheds light on the struggling business. In Q3 2023, net revenue was down 3% year-over-year (YOY). This included a 1% decrease YOY in ad revenue, and a 12% YOY decrease in value-added services revenue. Considering both active daily users and active monthly users were up, that doesn’t paint an overly optimistic future for the company’s continued revenue success. As a material improvement in China’s macroeconomic and political situation is unlikely to happen any time soon, Weibo’s situation could only get worse from here.
Weibo’s stock may face headwinds as geopolitical tensions and government interventions in the tech sector create an unpredictable environment, making it a less favorable investment compared to more stable alternatives in the current market conditions. All things considered, Weibo should be at the top of the list of social media stocks to sell.
Snap (SNAP)
Snap (NYSE:SNAP) offers a confusing mix between growth and declines in its key segments, but the recently reinvigorated pressures on SNAP overall are too much for investors to bear.
In 2023, Snap reported a marginal increase in annual revenue, reaching $4.6 billion, up less than 1% YOY. The company managed to reduce its net loss to $1.3 billion from $1.4 billion the previous year. Despite improvements in net loss, Snap’s adjusted EBITDA declined by 57% to $162 million in 2023.
For Q1 2024, the company’s adjusted EBITDA is estimated to be between negative $55 million and negative $95 million, thanks to its revenue expectations and investment plans. Still, the company expects its YOY revenue growth to be somewhere between 11% to 15% in Q1. While its daily active users grew by 10% YOY in the fourth quarter, there are signs that its user base is dwindling. And with recent concerns that Snapchat poses privacy risks to children and that the platform is under-regulated, SNAP could be in for a noticeable decline in the near future.
Pinterest (PINS)
Founded in 2010, Pinterest (NYSE:PINS) is a social media platform that allows people to discover inspiration, share ideas and find content related to their hobbies and interests through a visually-oriented and user-friendly interface. For Q1 2024, Pinterest expects revenue to be in the range of $690 million to $705 million, representing a 15-17% growth YOY. This guidance aligns with the consensus but indicates a cautious outlook.
However, the company’s stock-based compensation for all of 2023 was $1.6 billion, a 46% increase YOY. That’s 52% of Pinterest’s annual revenue for 2023 which came in at just over $3 billion. This highlights the significant costs associated with retaining talent at Pinterest.
It can be risky for investors to put a lot of money into stocks like PINS that are issuing shares through stock-based compensation. This practice can dilute existing shareholders’ equity and, if done excessively, may signal to the market that the company is more willing to spend on compensation than on direct business growth or dividend payouts. Additionally, heavy reliance on stock-based compensation can sometimes obscure the true cost of employee compensation in the financial statements, so the problem could be worse than it appears at first glance.
Given that the company’s revenue growth YOY was only 9%, which is certainly not spectacular, investors should consider putting PINS on their list of social media stocks to sell as there are better opportunities elsewhere.
On the date of publication, Matthew Farley did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.