The truth hurts and when in the form of poor earnings news can lead to a complete collapse in share price.
On Thursday we saw social gaming site Zynga (NASDAQ:ZNGA) lose nearly 40% of shareholder value in one trading day after releasing disappointing operating results. Trading in sympathy, shares of social network behemoth, Facebook (NASDAQ:FB) lost nearly 10%.
And that was before the company reported its own reports that failed to excite investors. Instead it was quite the opposite and more losses for the newly minted publicly traded company.
Oops, there goes another 10% of value. Are you kidding me?
As an earnings player, I am absolutely thrilled by the action. The wild swings in share price of a company reporting results can generate massive trading profits for Earnings Players.
Own put or call options on these big movers and triple digit gains can be had and had very quickly as in one day of trading or less. Of course get the option buy wrong and you can lose big too.
As such if you are going to play the earnings trading game, you need to have a plan of attack that puts you on the right side of the trade. Part of that plan includes following trends.
In the week prior to last we saw a double digit share price move in shares of Chipotle Mexican Grill (NYSE:CMG). That set the stage for what was wonderful trade in Buffalo Wild Wings (NASDAQ:BWLD). That company reported results last week with a mirror image result to what transpired in Chipotle.
Now with Zynga and Facebook dropping like a rock what companies reporting next week face a similar fate?
As it turns out there are several newly mined IPO companies reporting results. I’m starting my search for Earnings Player trading opportunities there.
Here are 5 earnings reports I would look closely at:
Yelp (NASDAQ:YELP)may be a popular social networking business that is gaining users in big bunches, but so what? We saw in the internet boom many companies that sold clicks as if they were gold. It turns out clicks were fool’s gold. Now, I’m not suggesting that Yelp is headed for a dot com boom collapse to oblivion I am merely suggesting that investors should be wary. If Zynga can drop 40% after an earnings report, so too can Yelp. There is simply nothing but trouble that is likely to arise when this company reports results on August 1.
Unlike Facebook, Zipcar (NASDAQ:ZIP)is a real business with a real product that most importantly people are willing to pay for. I would much rather bet on a story like this, but caution is still warranted. These new business often entail a fair amount of risk. If you overpay you simply have less likelihood of being compensated fairly for the risk we are taking. Zipcar shares have already dropped significantly so Wednesday’s (August 1) report is will be the shot of truth that determines whether the next leg is higher or lower. Analysts expect a breakeven quarter. A miss here and this one could drop by 10% or more easily.
Before social networking became all the rage, investors were enamored with the cloud computing story. Fitting nicely in that niche was Cornerstone OnDemand (NASDAQ:COSD).
If you believe the hype, this company has a promising future. Analysts have revenues exploding by more than 50% from the current year to the next. While that revenue growth has yet to deliver profits, breakeven is expected in 2013. It makes for an interesting story, but I’m not sure I would pay 10 times revenue for the opportunity. Any sign of trouble and shares are likely to collapse in Zynga like form. (Earnings release date: July 30)
In analyzing the market reaction to Facebook’s earnings report it is clear investors are in a “show me the money” mood. While it is all well in good that Facebook is growing its user base, the market wants to know where the profit growth is coming from. With LinkedIn (NASDAQ:LNKD) we have a company that has actually figured out how to make a profit. Not only that, but analysts expect those profits to grow at a solid clip.
Ironically, it is the threat of Facebook that might spell disaster for LinkedIn. Given the short attention span of market participants, LinkedIn is likely to see a bounce in share price as it demonstrates an ability to make money as currently expected. Then again, if they show weakness, all bets are off. One way or another, the move is likely to be big. (Earnings release date: August 2)
Another new publicly traded company in stark contrast to Facebook is Yandex (NASDAQ:YNDX). The eastern bloc internet search engine company is more like Google (NASDAQ:GOOG) and Baidu (NASDAQ:BIDU) , not Facebook. Analysts are expecting Yandex to make 17 cents per share in the quarter ending June 30, 2012 and 84 cents per share for the entire 2012 year.
That profit is expected to jump 35% in 2013 to $1.13 per share. I would much rather pay for that earnings growth than something like Facebook or Zynga. You can buy Yandex shares for just 18 times next year’s estimated earnings. When Baidu reported results shares jumped. Expect the same here. (Earnings release date: July 31)