Social media may feel like a mature industry, but the fact is it’s still in its nascent stages and can offer investors runways to significant growth, levers that the Global X Social Media ETF (NasdaqGM: SOCL) can pull.

SOCL seeks to provide investment results that correspond generally to the price and yield performance of the Solactive Social Media Total Return Index. The index tracks the equity performance of the largest and most liquid companies involved in the social media industry, including companies that provide social networking, file sharing, and other web-based media applications.

In its early years, the social media industry was all about user growth. These days, Wall Street and investors want more, meaning more revenue, more monetization of users and more profits.

“Rather than looking for new users, social media platforms now focus on maximizing the revenue generated from each user,” writes Pedro Palandrani of Global X in a recent note. “One way to do that is by selling more ads, for more dollars. Social media captures about 40% of total internet spending through selling targets ads to its user base, but is looking to win even more of the growing pie.”

Focusing on Monetization

Social media platforms such as Facebook, Snap, and Twitter, each of which are among SOCL’s top 10 holdings, don’t charge their users to user their platforms, making monetization essential to their business models.

“With user bases totaling hundreds of millions, if not billions, monetization is the new focus for the largest social media companies. User growth for major networks was 11% in 2019, whereas revenue grew 17%,” notes Palandrani. “he vast majority of this revenue comes from advertisers who are set to spend more on online platforms, and social media in particular, than traditional media, such as TV, radio, magazines, etc.”

Integral the long-term social media thesis are factors including mobile penetration and large companies embracing social networking as an avenue for attracting new customers. Those factors and others are expected to lift average revenue per user (ARPU).

“ARPU is a function of the number of ads served, the price advertisers are willing to pay for each ad unit, and overall user engagement. Firms with higher ARPUs typically have active user bases that are engaging with substantial amounts of content on a regular basis. In addition, a high ARPU firm can deliver hyper-targeted advertisements across a range of formats,” according to Global X.

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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.