Tara Clarke: Over the last month we’ve seen Facebook Inc (NASDAQ:FB) dramatic share price rebound, Twitter’s stock IPO announcement, and LinkedIn (NYSE:LNKD) stock on fire, but have you ever wondered… how do social media companies make money?
To find out, we turned to Money Morning E-commerce Director Bret Holmes. Part of Holmes’ job is to utilize web advertising via social media platforms to best market Money Morning. As a result, he’s on top of what’s going on inside of today’s social media giants.
Holmes said the key to unlocking value for social media companies is successful advertising models.
“Social media companies are legitimate advertising websites, no different than, say, Google or Yahoo. The same way Google made its money is the same way Twitter and Facebook will make their money,” Holmes explained.
Web advertising is a growing market. In a 2013 Nielsen report, data showed that 89% of advertisers use free social media advertising, and 75% use paid social media advertising. The report also highlighted that 64% of advertisers expect to increase their paid social media advertising budgets over the course of 2013.
That means a lot of opportunity for social media companies to make major money.
The trick for social media companies looking to profit as ad platforms is to find the best way to insert advertising into the user’s experience without impacting the user in a negative way.
For any doubters out there who don’t believe that advertising methodology is hugely important to investing in social media stocks, take heed…
In late July, Facebook announced that mobile ads account for a whopping 41% of its $1.6 billion second quarter ad revenue. Facebook shares closed at $26.51 that day. But in after-hours trading, shares skyrocketed to nearly $31.
It’s clear that advertising plays a huge role in a social media company’s value – and the success of social media stocks.
To learn how to gauge which companies will succeed, here’s how social media advertising actually works…
How Social Media Companies Make Money: A Lesson from Facebook
The Facebook initial public offering (IPO) was an unmitigated disaster. It lost more than half of its value within six months of listing and was priced at 107 times trailing 12-month earnings, making it pricier than 99% of all companies in the S&P 500 at the time.
But boy did it rebound.(...)Click here to continue reading the original ETFDailyNews.com article: Facebook Inc (FB): Making Money With Social MediaYou are viewing an abbreviated republication of ETF Daily News content. You can find full ETF Daily News articles on (www.etfdailynews.com)
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