Investors show caution with social media firms despite strong revenues
Facebook, LinkedIn and Twitter all dipped in value this week, while Yelp fell by 25 per cent
NEW YORK— It hasn’t been an easy week in social media, despite double-digit revenue growth from Twitter, LinkedIn and Facebook. Investors are looking beyond headline numbers and finding reasons to sell.
Not even Facebook, with stronger-thanexpected profit and revenue numbers and bulletproof mobile advertising strat- egy, was spared.
Its stock is down 2.6 per cent for the week, compared with a roughly 1 per cent increase for the Standard & Poor’s 500 index. A whopping 82-per-cent rise in expenses spooked some investors.
Though the stocks dipped across the board, there was no common thread that ties the companies’ fates together. Facebook has been trading near record highs, so investors cashing in on some profits after the earnings report seems understandable. Twitter’s stock on the other hand, has been trading near its lowest level in two years over concerns about its ability to attract users, not to mention several high-profile departures. It’s off about 12 per cent since the start of the week. Yelp fared the worst, its shares down 25 per cent for the week as some question the company’s ability to survive on its own.
LinkedIn, whose stock is down about 8 per cent for the week, delivered quarterly results above Wall Street expectations. But the company said that one of its business segments, display advertising, is seeing some softness and investors took that as a sign to cut back. Some industry analysts urged patience, noting LinkedIn is showing strength in newer areas.
It acquired Lynda.com, an online learning site, in the second quarter in an effort to extend its services to people who are not looking for new jobs. Sarah Hindlian of Brean Capital, said the Lynda acquisition masked what was actually a weak quarter for LinkedIn. She said she does not think that the company can continue to acquire expensive companies “to bolster growth forever.” This segment charges businesses and headhunters that use its site to find job candidates.
“We advise investors sell premium valuation shares of LinkedIn, as growth decelerates,” she wrote in a research note.
While Twitter’s user growth has been stalling, Facebook has nearly1.5 billion people who check in to the site at least once a month. That’s nearly a fifth of the world’s population. Twitter, meanwhile, remains in many ways a niche social network, popular with celebrities, journalists and young people. Its biggest task is convincing the rest of us that we need it.
Facebook isn’t struggling on the user front, but it is spending heavily on hiring and on new endeavours such as virtual reality.