In this article, we will look at the 7 Cheap Social Media Stocks to Invest in. Let’s look at where Yelp Inc. (YELP) stands against other cheap reliable stocks.

Social Media Platforms for News Consumption

Digital sources, especially social media, have become a critical part of the news diets of Americans. According to the Pew Research Center, more than half of US adults (54%) sometimes get news from social media. This number has risen compared to the past few years. Facebook and YouTube are the most popular places for US citizens to consume news, especially election-related updates, just days before Americans set out to choose their next president. Around a third of US adults say they regularly absorb news from these two sites.

However, despite having relatively small overall audiences, some social media platforms are becoming increasingly popular news destinations among their users. For instance, around 59% of X users say that they get news from the platform, while 57% of Truth Social users say the same, which is the site owned by former POTUS Donald Trump.

In contrast, only 14% of LinkedIn users regularly get news from the platform. TikTok is another social media platform gaining increasing popularity, especially among the younger generation. Around 52% of TikTok users get regular news from the platform. This number grew from 43% in 2023 and just 22% in 2020. YouTube and Instagram are also gaining more followers, highlighting the increasing role of social media platforms in disseminating news. These trends hold special significance in the current US landscape, with presidential campaigns in full swing.

The US Election Campaign and Social Media

Platforms like Facebook, Instagram, and X are increasingly developing new ways to market political campaigns, allowing more and more voters and candidates to interact. These platforms have also reversed their ban on former POTUS Donald Trump since he is once again back in the presidential race. However, the circumstances pose a serious responsibility on such social media platforms: a legal obligation to offer a safe environment to their users amid expectations that they provide former POTUS Trump a platform that is not restricted or over-regulated for their campaigns, especially when compared to his political opponents.

Social media is thus being used as one of the most powerful tools in a presidential campaign’s toolbox. However, the use of these platforms is also raising concerns surrounding the echo chamber and bandwagon effect. According to research published in the Proceedings of the National Academy of Sciences in 2021, content curation by social media platforms created political echo chambers. These chambers are a natural part of a social media platform’s impersonal algorithm that shows users the content they are interested in by analyzing their engagement. Thus, a platform is very likely to continually recommend left-leaning content to a politically left-leaning person, and vice versa.

Social media echo chambers, therefore, lead to the bandwagon effect, reinforcing and amplifying mass media’s messages and affecting the public’s perception of candidates and their operations. Such happenings allow misinformation to spread quickly and run rampant. According to statistics by the Pew Research Center comparing the political perceptions of 2016 and 2020, the number of people who found social media-led political discussions “interesting and informative” fell from 35% in 2016 to 26% in 2020.

However, these drawbacks do not undermine the critical importance of social media platforms in disseminating news, swaying public perception, and acting as a tool in the current politically charged landscape.

Our Methodology

We first consulted ETFs and online rankings to create an initial list of 20 publicly traded social media companies with forward P/E ratios of less than 20. From this list, we selected the 7 stocks with the highest number of hedge fund holders as of Q2 2024 and used that as our ranking metric.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

Yelp Inc. (NYSE:YELP)

Forward P/E: 9.8

Analysts’ Upside Potential: 15.46%

Number of Hedge Fund Holders: 26

Yelp (NYSE:YELP) is a social platform that connects consumers with businesses. Its website and mobile app publish crowd-sourced reviews about businesses. It offers consumer-interactive tools and features to facilitate transactions between local businesses and consumers. The company’s advertising products allow businesses to reach a larger audience, irrespective of the size of their operations.

Businesses can drive conversion of their services while users can use the social platform to make well-informed decisions. It offers subscription services, licensing payments for access to Yelp data and other non-transaction, non-advertising arrangements. Yelp’s (NYSE:YELP) advertising products are sold online, through its website, through the Yelp for Business app, and indirectly through partners.

Yelp (NYSE:YELP) offers several free and paid advertising products to businesses of all sizes, including CPC Advertising (Yelp Ads) and Multi-location Ad Products. The company’s business page products include Upgrade Package, Free Business Account, Business Highlights, Branded Profile, Portfolio, Enhanced Profile, Yelp Connect, Logo, and Nearby Jobs.

Yelp (NYSE:YELP) delivered record net revenue and strong profitability in Q2 2024. It is continuing to leverage its product-led strategy to drive growth and profitability, especially in-home services and self-serve channels. Home services experienced a 15% year-over-year growth in Q2, while self-serve channels underwent a revenue increase of around 20% year over year, reaching record level.

The company is also continually updating its service products. Yelp Assistant, a new conversational AI feature, is a prominent example. Yelp Assistant makes finding and hiring service professionals considerably easier. The company also introduced the Yelp Fusion AI API, which brings Yelp’s trusted content to third-party platforms through natural language search. The revamped Yelp Guest Manager is another significant update, helping restaurants enhance efficiency, improve guest experiences, and seat more diners.

Despite challenges in the operating environment for retail, restaurants, and other businesses, Yelp (NYSE:YELP) has plans in place to build upon its strong momentum in services. It is focusing on executing against its robust product roadmap to deliver improved consumer experience and service pros.

Overall, YELP ranks 3rd among the cheap social media stocks to invest in. While we acknowledge the potential of cheap social media companies, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than YELP but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article is originally published at Insider Monkey.