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Social Media ETF Proving Impervious To Riots, Twitter Calamity

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Social Media ETF Proving Impervious To Riots, Twitter Calamity

Keeping personal politics out of the equation and focusing on pure price action, it's clear Twitter (NYSE: TWTR) has a political problem.

What Happened: Regardless of one's political proclivities, it can't be refuted that Twitter is lower by 12.69% over the past week with losses accelerating following the social media company's permanent ban of President Donald Trump. That decision is sparking concern about the all-important average daily user metric, among other issues.

Good news: Twitter is just one social media stock and while it may be advisable to take a pass on this particular over the near term, there are alternatives for betting on social media equities.

Why It's Important: Give the Global X Social Media ETF (NASDAQ: SOCL) its due. The first dedicated social media exchange-traded fund is higher by 3.08% over the past week and up 5.08% to start 2021 while Twitter, its fifth-largest holding at a weight of 6.59%, is down 13.13% year-to-date.

Said another way, SOCL is proving there's something to the basket approach to social media names, which could serve investors well as political headwinds abate.

“We do not believe the decisions to eliminate President Donald Trump’s personal accounts or moderate Trump-related content more aggressively will result in the repeal of or drastic changes to Section 230 of the Communications Decency Act, which offers immunity from liability for Internet content,” writes Morningstar analyst Ali Mogharabi.

Mogharabi notes that Google parent Alphabet (NASDAQ: GOOG), another SOCL component, will be able to navigate the decision to remove Parlor – a conservative rival to Twitter – from its app store.

What's Next: Integral to the SOCL equation is that not all social media companies are known for intense political debate that leads to unsavory exchanges between users of all political leanings.

SOCL allocates almost 10.30% of its weight to Snap (NYSE: SNAP), while Pinterest (NYSE: PINS) and Spotify (NYSE: SPOT) combine for nearly 10%. Neither of those companies operate platforms conducive to political savagery and these days, that's to their and investors' benefit.

“We have not made any changes to our projections and fair value estimates for Facebook, Alphabet, Twitter, Snap, or Pinterest,” said Mogharabi. “We continue to view Twitter, Snap, and Pinterest as overvalued. We recommend waiting for a slight pullback in Alphabet and Facebook before allocating new capital to those names.”

 

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