Social media has reached a ceiling

Saturday, 11 August 2018

Facebook’s user growth stagnates, while Twitter and Snap experience userfreight. Social media platforms may have reached the top, believes Norwegian analysts.

There has been a common denominator for the social media platforms on Wall Street, and there is a surge in user growth, says analyst at ABG Sundal Collier, Aksel Ø. Engebakken.

Engebakken predicted earlier this year that you could see user flights from social media already in the second quarter.

This occurred following the stockfall Facebook experienced in March in connection with the Cambridge Analytica case and the fear of regulation of the platforms.

The analyst was correct, because Facebook has reported stagnation and lower growth in the next few months. Twitter and Snap report a decline in the number of users.

Engebakken does not believe that lower confidence in social media can explain the situation.

I think the reason is composed. The companies all have their own reasons, so I think it’s too easy to say that the Cambridge Analytica case is the cause, there are many reasons, he says.

Engebakken follows mainly 14 technology companies on Oslo Børs, but also has an eye on what is happening in the United States.

Social media top level

Engebakken emphasizes that no companies can attract users forever.

“You must remember that these platforms have up to billions of users, so one theory is that you have reached the number of users you can attract,” he says, adding:

“I’m inclined to believe this theory.

– Are there any other companies that can benefit from the user experience of classic social media?

“I think other social platform companies who manage to keep more users’ attention can benefit from Twitter, Facebook and Snap now experiencing. Here is the company behind Tinder, Match Group, a possible example, which delivered strong growth in the second quarter, and saw the stock rise 20 percent.

Analysts in Heritage Capital, Paul Schatz, warned their investors in a note Thursday.

He writes that it is possible that the Facebook stock has seen its highest level for several years, according to Marketwatch.

He says the case that came after the last quarterly report shows that the damage from the privacy concerns will continue.

“A worst-case outcome is that the market is in an early phase of reassessing the company’s value, and that the stock can fall down to $ 149 the next year, following this latest recovery,” explains Schatz.

Buying in Facebook

Odin’s US fund bought up in Facebook in April, and the stock accounts for around three percent of the fund, which has a total assets of 1.3 billion.

Not surprisingly, Facebook was one of the weakest stocks in the portfolio in July.

“When we bought the stock in April, we did not expect the Cambridge Analytica case to affect users, and we do not think what we saw in the second quarter is due to this,” said Portfolio Manager at Odin’s United States Fund Harald Nissen, who in this way agrees ABG analyst Engebakken.

– So you looked at the last case as a buying opportunity?

“Yes, we have bought us a little lately, and the stock now accounts for just over three percent of the fund,” says Nissen.

He says Instagram, which is still growing strongly, was a reassuring factor in the quarterly report.

“Had not Facebook owned Instagram, I think people had been concerned about the competition,” he said.

Nissen says the fund expects to see results of Facebook’s commitment to “stories” in new user growth in three to four months.

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