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Social Media Outlook: Advertising Disruption | ITEK

In this outlook, we show how social networks are winning an ever-growing slice of global advertising spend versus traditional media options.  We highlight why advertisers have made this shift and highlight four leading global social media platforms, well positioned to benefit from these trends. Companies included in this article are:

  • Facebook 
  • Snapchat
  • Sina Weibo
  • Meet Group

 

The Growth of Social Media 

Nearly one-third of the world, or 2.5bn people are active social media users. By 2021, this total is estimated to have exceed 3bn, driven by emerging markets users coming online for the first time via low-cost smartphones and mobile broadband. Through social media platforms, advertisers will have the potential to reach an additional 500,000,000 consumers by 2021.

 

Social Media User Growth 2010-2021: Billions of Users [1]. 

The Digital Disruption of Advertising

There is a seismic shift occurring in the way the average person consumes information and entertainment content. Historically, TV and Radio have been the primary opinion-shaping media, taking the greatest ‘share of mind’ of the audience. Yet now, for the first time, audiences are spending more time looking at their mobile phones than TVs. This profound change in consumer behaviour, information dissemination and use of leisure time has significant knock-on effects for advertisers who must now develop new strategies to deliver effective, impactful content and messages.

 

Average Time Spent Per Day (Minutes) [2].

In an increasingly fragmented media landscape, traditional advertising strategies are no longer cost effective. As consumers spend more time on mobile devices and less time on newspapers, magazines and TV, marketing managers must develop new strategies to deliver their message. With userbases that dwarf the audiences of even the most successful prime-time TV shows, social platforms offer a more compelling proposition to advertisers that want cost effective targeting.

Some see a Zombie Apocalypse, Others See an Advertising Opportunity

This evolution in the viewing habits of consumers has catalysed a profound change in advertising buying patterns. While most traditional advertising mediums have been in long-term secular decline, digital advertising spend has rapidly accelerated. In 2016 the ad industry became digital-first - more advertising dollars were spent online than on TV, or any other form of media. In total, online ad spending grew from ~$48.4bn in 2008 to ~$227bn in 2018 and is estimated to reach ~$274bn by 2020.

Global Ad Spending by Medium. $Billions [3] 2000-2020.

Social media advertising, as a subset of internet advertising, reflects these broader trends. In the UK, Europe’s largest digital advertising market, two-thirds of all advertising budgets are now deployed online, and a quarter of that is deployed on social media [4]. In the UK social media advertising is predicted to even eclipse TV ad spend by 2020, taking an estimated 30% share of all advertising budgets. This is a phenomenal land grab by social platforms, most of which did not exist 15 years ago.

UK Digital Ad Spend £Billions [5] 2018-2022.

Social media advertising revenues have also shown consistent growth. In May, 2018 the PWC The Interactive Advertising Bureau (IAB) report showed that since 2012, social media advertising revenues have grown from US$2.9 Billion a year to $22.2 billion a year and now capture a quarter of all advertising revenues.

Internet Advertising Revenues US$ Billions [6] 2012-2017. 

Positioned for Growth

Given the seismic shift from traditional to internet advertising, we highlight four social media companies with the potential to benefit from this long-term change in advertising buying and consumption.  Each company highlighted is a constituent in the HAN-GINs Global Innovative Technologies UCITS ETF (ITEK).

Snapchat: ~300 Million Monthly Users

Snapchat is recovering from a disappointing 2018 which saw its shares slump to all-time lows.  However, it’s shares have soared upwards of 20% in February 2019, following its fourth-quarter 2018 earnings surprise.  The social media company earned $390mn in revenue and posted far smaller losses than expected [7].  Global daily active users also beat estimates reaching 187mn – ensuring Snap stopped its user base attrition. This helped it add more advertisers, keen on using its automated tools. 

Snapchat allows photos, pictures and messages to typically appear for only a short time, before they become inaccessible to recipients. The app has evolved from originally focusing on person-to-person photo sharing to presently featuring users' "Stories" and 24 hours of chronological content.  It’s "Discover" option lets brands show ad-supported short-form content.  Snapchat emphasizes users interacting - with virtual stickers and augmented reality objects.  In the US, Snapchat attracts a younger demographic, with the majority of users in the 18-24 age bracket.

SnapChat Users By Age Group [8] 2018.

Meet Group: ~2.8 Million Mobile Daily Users

The Meet Group’s (NASDAQ: MEET) portfolio of mobile social entertainment apps – helps millennials and Gen Xers connect. Their primary apps, MeetMe®, LOVOO®, Skout®, and Tagged®, keep millions of mobile active users entertained – resulting in very active casual chats, friendships, dates, and marriages. Their innovative products let users stream live video, send gifts, chat, and share photos.  Their newest game app (Battles) – offers live competitions for the best dancer, musician or comedian, bringing large audiences and participants together.  (Each ‘battle’ lasts just a few minutes, and the winner is the streamer earning more diamonds - by receiving gifts from viewers during the battle period.)

As mobile usage soars worldwide and grabs an ever-increasing slice of advertising spend – MEET’s share price recently hit a high of $6, almost doubling in 12 months.  (It has retreated to $5.40 at close Feb 11, 2019 – well above the $4.60 price at the start of 2019) [9].

MEET has a diversified revenue mix consisting of in-app purchases, subscription, and advertising. It is currently one of HAN-GINS INNOVATIVE TECHNOLOGIES (ITEK) ETF’s largest holdings at 1.9%.

Facebook: ~2.2 Billion Monthly Users

Despite the well-known privacy scandals surrounding Facebook, it is enjoying record advertising sales across its portfolio of apps. The share price is starting to recover, but at levels of $160 remains well below record highs above $200 [10].  Much of the negative news is already priced in for Facebook.  Meanwhile, the company has increased limits on the outside use of its data, while ratcheting up its own data collection practices.  The new California Consumer Privacy Act expected to take effect within the next year – will ensure tougher privacy protection laws.  The US Congress is expected to pass a similar law that has features resembling the EU’s GDPR regulation which has sizable penalties

In particular, Instagram is now its fastest-growing App according to Bloomberg [11].  While WhatsApp. has not become a huge cash earner yet - Facebook Inc. is working on making a cryptocurrency that will let users transfer money via this WhatsApp messaging app.  The focus is likely to be on the remittances market in India. 

Facebook is developing ‘stablecoin’ -- a type of digital currency pegged to the U.S. dollar, to minimize volatility. Facebook, now has 2.5 billion global users with more than $40 billion in annual revenue.  It would be the first large tech player to launch such a coin.  Interestingly a new launch/plan involves merging the background messaging functions of the various apps it owns (Instagram, WhatsApp, and Facebook Messenger) – allowing users to send chats among services. Facebook will encrypt the messages so that only senders and receivers can see them. 

China Social Media - is Different 

Social Media Platforms: Monthly Users, Millions [12] January 2019.

The above chart shows the largest social media platforms ranked by monthly users. While Facebook, Snapchat and Twitter will be familiar to most western investors an entirely different array of social providers operate in Asia-Pacific. Western investors may be unfamiliar with companies like Baidu, Sina Weibo or Tencent, but with over 2 billion combined users, they have huge audiences and an established social and e-commerce businesses that position them well against the backdrop of increased social and digital ad spend. 

The tremendous penetration of social media companies into the Chinese e-commerce space highlights one of the main cultural differences between Eastern and Western social media usage (and the importance of including both in a social portfolio). In the West, social media is mostly used to send messages and photos to one another and connect with friends. In China, social media has significant ecommerce aspects, allowing users to buy directly through WeChat, Weibo, and other live streaming platforms.  This allows Chinese consumers to use social media as a news platform, to follow celebrities, participate in events/campaigns and engage in ecommerce.

Sina Weibo: ~446 Million Monthly Users

Sina Weibo (NASDAQ: WB) is a Chinese microblogging website.  While often described as China’s version of Twitter, Sina Weibo is closer to a combination of Twitter and Facebook. Most of the topics going viral on Weibo, originate on the platform itself, unlike Twitter which relies on news or events. Weibo's long-term outlook is attractive – based on China's online advertising industry growth and consumer discretionary spending expected to see strong gains. With Chinese tech stocks having had a tough 2018, Weibo stock trades down roughly 50% from its all-time high in early 2018.  Sina Weibo now has over 445 million monthly active users.  At the start of 2018, it surpassed US$30 billion market valuation mark [13].  Users are encouraged to use graphical emoticons (emojis) or attach their own image, music, video files in every post. It is an incredibly effective site to reach Chinese consumers and millennials. 

Accessing the Social Media Story: HAN-GINS Innovative Technologies UCITS ETF (ITEK)

The HAN-GINSInnovative Technologies UCITS ETF (ITEK) - a UCITS compliant Exchange Traded Fund domiciled in Ireland which tracks the Solactive Innovative Technologies Index.

The ETF seeks to provide exposure to a diverse basket of companies poised to benefit from the digital revolution, including social media leaders. The index includes world-changing companies from developed and emerging markets whose products and services are driving innovation, transforming industries and changing lifestyles across the world in emerging industries including:

  • Social Media 
  • Genomics 
  • Blockchain 
  • Cyber Security
  • Future Transportation 
  • Clou Computing 
  • Augmented and Virtual Reality 
  • Robotics 

HAN-GINS InnovativeTechnologies UCITS ETF (ITEK) is issued by HANetf and listed on London Stock Exchange, Borsa Italiana and Deutsche Boerse XETRA with a TER of 75bps.

Fund Partner

The HAN-GINS Innovative Technologies UCITS ETF has been created in conjunction with GinsGlobal Investment Management, a multi-billion dollar asset management company, founded in 2000 with operations in North America, Africa, Middle East and Asia-Pacific.

Download the full whitepaper "Social Media Outlook: Advertising Disruption" here

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