The majority of the analysts covering the social media space are missing the main story, and that is that social media sites simply do not offer terribly compelling advertising opportunities. A significant portion of the advertising spending they are pulling is coming from advertisers utilizing media allocation models. However, if an advertiser is allocating 10% of their media spend on social media sites, a rise in the views of the social media sites will not lead to a proportionate increase in advertising revenue (at least during the current fiscal year). The potential ROI from advertising on the social media site varies, but the site that is generating the most dumb money from advertisers is probably Twitter. For most businesses, Twitter advertising is too expensive to pay-out.
Most of the social media sites are great shorting candidates. However, there are two that I would stay away from shorting, Facebook and Linkedin.
I am not going to short Linkedin because there is the potential for them to ramp up their revenue from employment recruitment activity. I doubt that this potential revenue source justifies Linkedin's valuation, but it is outside my main thesis in regard to advertising revenue potential being overvalued on the other social media sites.
The other social media site that I would not short is Facebook. While I am dismissive of the advertising opportunities on Twitter and some of the other social media sites, I am a Facebook advertiser. Further, I have money in my budget to advertise on Instagram if Facebook ever launches advertising availability on Instagram. So, I am literally waiting to throw my company's advertising dollars at Facebook via Instagram, once there are opportunities to do so. Given that Facebook has an opportunity to create another huge revenue stream if they can figure out how to monetise Instagram, my suggestion is to be wary of shorting Facbook
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