TCTZF - SOCL's Stocks Don't Keep Stakeholders Happy
Summary
- SOCL is a social media ETF from Global X with all the social media platforms that dominate a lot of modern discourse.
- Two major problems are faced by this ETF, the first is that advertising spending is probably going to contract.
- The second issue is that the largest of these platforms either have too much power or appear to create negative externalities that are bound to be regulated.
- Backbreaking regulations could crumple the ways of business for a lot of these stocks.
- Also there's the issue around Musk's acquisition of Twitter, which will likely go through, but also just put Twitter further into regulatory crosshairs.
The Global X Social Media ETF ( SOCL ) contains all the publicly listed Western and Eastern media giants, and there's plenty reason to be worried about these exposures. Advertising is how most of these companies make their money, and budgets are shrinking. Moreover, the Sword of Damocles hangs over all these companies from regulators concerned about everything from straight monopoly behavior to real public ill from the apps themselves. China is even more progressive in its crackdowns. Finally, Twitter ( TWTR ) is a pretty large part of the portfolio and will become more exposed to distinct regulatory action as the brand becomes associated with Musk. This fund is a pass for us.
SOCL Snapshot
Twitter is at the top with a 13% allocation . Let's start with them since they've been grabbing headlines. Twitter is going to be bought by Musk for $44 billion, which put a large premium on the stock. The stock has declined from that proposed price by about 10%, and this kind of volatility is pretty reasonable given the broader themes we see for these stocks. Twitter is to a large extent a public good, and it presents issues of both public health and national security. In general, the public health idea is newer but is gaining traction, and could be a source of punitive liability for a lot of these companies. Investors should watch out. But the national security concerns are very actual given Musk's risque comments about the war in Ukraine where the West supports the forces against Russia, and Musk's role in providing what has become important military and civilian infrastructure with Starlink for the war effort there. Musk's free speech campaign for taking over Twitter could be in for a rude awakening. The people who were running things before weren't so ideological that they could be faulted for a politically correct strategy, indeed, for the very reason that politics wouldn't get involved in business affairs. Plans to cut 75% of staff, who are lots of moderators and others that look to control what information spreads, will not be a popular move for stakeholders like the US government that are looking to limit Twitter's power to disseminate not only morally reprehensible content, but also malicious content that could undermine government. Volatility will further come to Twitter for the downside as Musk mobilizes funds to buy Twitter, as the deal will become less likely to go through as government stakeholders make it clear that they will not be very happy with a consortium of foreign buyers getting involved. This is all an impulse for more bipartisan efforts to damage these companies in the US. While not quite as pointed because Musk isn't involved, similar issues are swirling around for Meta ( META ) and to some extent for Alphabet ( GOOG ) (GOOGL).
Chinese Players
Besides Western social media platforms, the entirely insular Chinese platforms are under similar pressure. Tencent ( TCEHY ) commands presence both as an owner of several of the world's largest social media apps, but also for gaming. The company has already been fined on antritrust issues , and their markets in gaming are viewed by state media as 'Social Opium'. When headlines around this broke billion in market value were lost off these companies. The force of regulatory pressure has brought the multiple of one of the most powerful conglomerates down to levels that you'd see for capitally intensive, cyclical businesses . These companies which concern themselves with matters that the CCP believe is a matter of public good have essentially been nationalized. Chinese social media companies account for 30% of the portfolio, and includes other lower multiple, beleaguered companies like Baidu ( BIDU ). Heavy anti-trust and health regulation could decimate valuations of the US social media giants as well.
Advertising
Finally, most of these companies depend on advertising budgets that are beginning to contract . Social media companies are beginning to falter and this is coming as the declines in consumer confidence observed in the summer are coming to take their toll on corporate spending too. Organic growth guidance is slowing among advertising players , and the high multiples in tech are unlikely to see positive earnings surprises as the stilts get kicked from under them with lower growth assumptions.
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SOCL's Stocks Don't Keep Stakeholders Happy