SEB mulls opportunities in social media investments

Thor Udenaes, manager of the SEB Globalfond in Sweden, believes it is time for investors to recognise that social media companies are not part of a short term bubble, but any investment consideration should beware the risks involved.

The three key social network services by size and innovation are Google +, Twitter and Facebook, Udenaes said.

For those seeking access to listed companies, he picks Facebook, Tencent Holdings – owner of Qzone, the biggest social site in China, with more than 700m users – and Google as the most interesting ones.

“Tencent and Google are interesting investments at current price levels, although Facebook is probably still overpriced,” Udenaes said.

A challenge facing all developers of social networks is the shift to mobile access by users, he added.

“In recent years users of, for example, Facebook have shifted from PC environments to the smartphone. That can create problems for advertising based business models, because there is less space to advertise on, and it can ofter be perceived as irritating by users.”

“The risk is that they don’t succeed in hooking the customers with advertisements in the same way Google has with its search platform. For example, if Facebook started to charge then presumably the number of users would fall rapidly. Even if the customers feel a certain connection to the site, they can move, and it is not certain if it is a ‘fad’ or a long term connection.”

Investors should not be overly concerned about the prospects for another bubble being created by internet stocks, Udenaes said. It should be fine to have such stocks as part of a diversified portfolio. However, he cautions against only holding this type of stock.

And despite the steep fall in the value of Facebook shares following its IPO, Udenaes does not believe social media are a bubble. He said that in the case of Facebook it was the result of investment banks pricing the issue wrong. But investments in other internet companies such as eBay and Google have done better so far.

 

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