The Wall Street Slump – How Much is Social Media Really Worth?

The Emperor Has #NoClothes

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Stock drops can mean all sorts of different things. They can be emblematic of trade devaluation, a change in ownership, some kind of public image issue or they can just happen for no discernable reason. When share prices begin to drop for several big companies all dealing in the same business though, it’s worth taking notice and it’s worth asking some big questions. Social media is one of the biggest growth markets in the world. The biggest companies are worth billions, but when the stocks start dropping, what does this mean for the future?

Over the past week or two, three of the most significant social media companies have been battered in the stock market. Following the leaked earnings report (which showed that they had failed to meet their targets) Twitter have experienced a drop in shares of around 25%. Yelp also recently reported dissatisfactory sales and subsequently lost 23% and most recently LinkedIn have dropped 25%, more owing to their poor sales projections than their actual earnings, but you get the idea.

This could all be one massive coincidence, companies experience sales drops, it’s hard to predict, difficult to weather but not impossible to recover from. Perhaps these three are all just going through an adjustment period. Or maybe it’s something much bigger. Wall Street have up until now been typically optimistic about the valuation of social media stock, anyone who invested in Facebook in 2004 or 2005 is probably living in an airship lined with gold with cocaine dispensers in all the bathrooms right now, but these sales reports are making the brokers much more wary.

The trouble with social media as an industry is that it’s not lucrative in any direct way, it doesn’t sell anything to consumers, as such. They make money from venture capitalist investments and ad revenue. Whilst the latter is still very much an emerging market, the former (where the big money comes from) is waning. In the early 2000s after the dot com crash investors were pumping billions into social media start-ups but that was before the recession really took hold. What this period basically resulted in was a kind of monetary bedrock which companies like Twitter and the rest have been supported by ever since, redistributing that money between larger and smaller companies as the ad revenue trickles in.

That period is over now, and it seems like Wall Street are beginning to value social media companies less and less. Even Facebook have had less optimistic sales projections than they might have hoped, but they are earning revenue from other, comparatively more secure resources like WhatsApp and Instagram. This is also what will keep Google safe from any shortfall in stock, they just have too many revenue streams for any one slump to derail them. Twitter on the other hand might be in real trouble, although they have Vine and Periscope to fall back on, most of their other avenues are still handcuffed to the main platform and a combination of negative press and rival platforms continues to drive users away.

That being said, some other recent news regarding the platform might shed some light on their plan to rectify the situation. In a recent twist, they cut a deal with Google to allow brand buyers who use Google to get promoted tweets integrated into the scheme as well. Facebook are leading the charge with digital marketing, so it makes sense that Twitter would seek to ally with their greatest rival, but does this point to an acquisition of Twitter by Google in the near future? It would depend entirely on whether or not Twitter sink into further financial turmoil, but they can't compete with Facebook anymore, that much is abundantly clear.

Social media as an entity isn’t going anywhere fast, but dedicated social media firms might soon find themselves in dire straits. Google and Facebook have the advantage of being massive, multifaceted conglomerates but once the smart money starts seeping out of a growth market, more dedicated companies inevitably wither and die. What this means is that in the near future we can expect to see less new social media platforms popping up independently, but probably more popping up as extensions of things which already exist, photo and video sharing sites, gaming platforms, music streaming services and the like. LinkedIn will probably survive, it still earns a great deal from subscriptions and a recent acquisition of the video tutorial site Lynda will surely secure its position, but other smaller sites will likely soon start to drop off. . 

Callum Davies

Callum is a film school graduate who is now making a name for himself as a journalist and content writer. His vices include flat whites and 90s hip-hop. Follow him @CallumAtSMF

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