Social Media Stocks Are Raising Their Profile

Facebook Inc FB has become so ubiquitous as a company and a titan of the stock market that it seemed new accomplishments would only begin to dwindle.

Not so fast – the company that posted the fastest rise to a $250 billion market capitalization just saw its stock hit $100 for the first time.

While breaking this level has much to do with the mathematical relationship of the company’s operating metrics to its total shares outstanding, it’s not exactly a coincidence that the stock crossing the $100 mark dovetails with an outsized respect from investors for the company’s progress.

“The big seminal event for Facebook was showing they could make significant money and turn themselves into a well-run company,” Tim Ghriskey, who helps oversee $1.5 billion as managing director and chief investment officer at Solaris Asset Management, told Bloomberg. “They’ve seen strong growth in advertising spending and viewership.”

Facebook shares have a 21.8% weighting in the Social Networking motif, which has gained 14% in the past month. During that same time, the S&P 500 has increased 7.5%.

Over the past 12 months, the motif has lost 3.6%; the S&P 500 is up 5.6%.

Of course, no small part of Facebook’s run-up of more than 30% this year is that investors are betting on a future that is at least as bright as the company’s recent past.

In a recent piece for Yahoo Finance, Capital Markets Laboratories CEO Ophir Gottleib attempted to make the case for shares of Facebook doubling — in large part due to the developments away from the company’s eponymous app and website.

Not that the growth and popularity of the world’s top social media destination is a small matter. As Gottleib pointed out, Facebook is topping 1 billion users in a single day and averaging 1.5 billion monthly active users – all of this while having no access to China, the world’s most populous nation.

Yet Facebook’s other businesses, particularly, What’sApp and Facebook Messenger, have given the company the three largest social media properties on the planet, which doesn’t even include Instagram and its 900 million users that Facebook is just beginning to monetize.

Meanwhile, the company’s upcoming rollout of its Oculus 3-D communications headset may just be the Next Big Thing in technology.

Gottleib cited a report from Deutsche Bank analyst Ross Sandler, who said the consumer version, which is expected to start shipping in the first quarter of 2016, could sell 1.5 million units at an average price of $350 each. That means sales of $578 million, which would represent 3% of revenue.

By 2020, Oculus revenue could top $1 billion.

Ironically, as Facebook somewhat quietly goes about its business of world domination, social media rival Twitter Inc TWTR has been repeatedly making headlines – job cuts, a new-old CEO, a stock donation by said new-old CEO, a 4% stake investment by former Microsoft CEO Steve Ballmer – all of which have had the combined effect of pushing shares of Twitter up nearly 20% in the past month. (Twitter has a 13.9% weighting in the Social Networking motif).

To be sure, the naming of Jack Dorsey to return as the company’s CEO has provided the lion’s share of the enthusiasm for Twitter’s prospects. As Ben Thompson suggested on his popular Stratechery site, “it’s difficult to come up with anyone better than Dorsey” to rebuild the product.

But this week the rubber hits the road, so to speak, as the company was set to face investors on Tuesday with its third-quarter earnings report, which could reverse the stock’s rally if extreme disappointment sets in.

RBC Capital Markets analyst Mark Mahaney said user growth and engagement – keeping those users coming back and spending more time – is a key item of focus.

Mahaney sees less of a slowdown in Twitter’s user growth rates in the third quarter, estimating that the company’s global base grew 13% to 323 million users.

The analyst also expects the company to report better user monetization numbers this quarter, closing the gap on Facebook’s performance.

Twitter generated $1.43 for every monthly active user in this year’s second quarter, compared to $2.61 for Facebook, but Twitter grew its monetization 41% compared to Facebook’s 26% year-over-year growth, Mahaney said.

Twitter is seeking new revenue from a deal struck in February with Google that makes tweets more searchable. Twitter tweets now appear in Google’s search results as soon as they appear on Twitter.

Should Twitter happen to deliver a report that beats expectations, the rally in its shares and other social media stocks may have more life left.