Surprisingly Strong Digital Ad Spending Could Propel Social Media ETF

Spending on digital advertising remains strong despite the Coronavirus pandemic, a trend with long-ranging implications that could benefit the Global X Social Media ETF (NasdaqGM: SOCL) as more companies transform the way they reach customers.

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 use their platforms, making monetization essential to their business models.

“We think advertisers will continue to allocate more of their ad dollars toward direct-response campaigns after the pandemic,” said Morningstar analyst Ali Mogharabi in a recent report. “The main beneficiary of what may become a lasting change is likely to be Facebook. Investments by Pinterest and Snap to enhance their direct-response offerings will probably partially offset the impact of lower spending on broad-based campaigns.”

Getting Social With SOCL

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).

“Digital ad spending in the second half of this year is likely to be higher than in the same period of 2019,” notes Mogharabi. “According to a survey of advertisers conducted by the Interactive Advertising Bureau in mid-June, more ad buyers said they plan to increase ad spending on social media and paid search than to not change or decrease their spending during the next six months compared with last year.”

One of the first ETFs in the thematic arena, SOCL seeks to provide investment results that correspond generally to the price and yield performance of the Solactive Social Media Total Return Index.

Some data points confirm all that staying at home is, perhaps not surprisingly, leading to increased use of social media platforms.

“We think the coronavirus has pushed businesses of all sizes to more rapidly start and complete their digital transformation,” writes Mogharabi. “More enterprises have been transitioning to the cloud, while many small and midsize businesses have begun to focus more on creating or improving their e-commerce sales channels.”

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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.