LinkedIn (LNKD), the social networking website used for professional networking, had a rough go of it last Friday, as LNKD stock was knocked down a couple pegs following its fourth-quarter earnings report the prior evening.
LinkedIn earnings were 11% better year-over-year, coming in at 39 cents per share, which topped Wall Street estimates by a penny. Revenues that grew 47.3% to $447.2 million also topped the consensus. Sales reportedly were strong thanks to good performance in all of the company’s business segments.
However, disappointing analysts was the company’s sales outlook for the first quarter 2014, which LNKD now sees in the range of $455 million to $460 million, compared to the $470.3 million estimated by analysts. The social networking website now has just shy of 280 million members, although it is not clear what percentage of them are labeled “active users,” which is a key metric for Facebook (FB) and Twitter (TWTR).
Investors and traders weren’t keen on the report despite CEO Jeff Weiner discussing his expansion plans in China on the conference call. Analysts, driven by herd mentality, quickly downgraded LNKD stock. (But to be fair, most of the social media stocks — along with many others of the new breed of Internet companies — still have much to prove in terms of their business plans, and that can lead to significant 180-degree turns in outlooks for those companies.)
The final toll was a 6.2% haircut to LNKD stock, which retested a thinning support line dating back to November.
Through the eyes of the multiyear chart, however, LNKD stock has so far only retraced 50% of its rally off the June lows and continues to marginally hold on to its 200-day simple moving average (red line). Through this lens, as long as LinkedIn shares continue to hold around the $200-$210 area, I will continue to look for potential opportunities to play the stock from the long side. However, a more meaningful drop below this area of support would get me more interested in shorting the stock or just leaving it be entirely for the time being.
On the daily chart, all of this is seen with more clarity. Note that since September, LNKD stock has traded in a choppy sideways fashion, which contrasts to other social media stocks and simply hasn’t offered any juicy trades for those interested in time frames of at least a handful of days.
More specifically, looking at last week, investors bid up LNKD stock on Thursday before the earnings announcement, only to sell it back off on Friday. Hence, the choppiness continues, but both medium-term resistance around $230 and medium-term support around $200 are thinning.
Last week, I saw several analysts and even a few market participants throwing all social media stocks in one bucket. I would caution that doing so will not only distort the view of reality, but also keep the more active investors from taking advantage of the routinely juicy opportunities that these stocks present.
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Learn more about the strategies Serge Berger uses to create profits in the market every day. Download his trading plan in the Essence of Swing Trading e-book by clicking here. As of this writing, he did not hold a position in any of the aforementioned securities.