Social Stocks: ‘Dead Cat Bounce’ Or Real Momentum?

by Tom Taulli | July 11, 2014 10:15 am

Since early May, the social stocks have had a big-time run. Consider that the Global X Social Media Index ETF (SOCL[1]) is up about 15% in that period. That gain came after a grueling bear move in the sector, and outpaces the S&P 500 by about 10 percentage points.

social stocks to sell

Source: ©iStock.com/pressureUA

But is this just a relief rally or are there legitimate opportunities for investors? Well, when it comes to social stocks, volatility seems to be the norm. Just yesterday there was yet another sudden drop. And while the moves can certainly be wrenching, the returns can potentially be lucrative as well.

So what’s an investor to do? Well, let’s take a look at three well-known social stocks and dive into the fundamentals to see if there’s anything worth buying:

Social Stocks #1 — Angie’s List (ANGI)

social stocks to sell, angi stockAngie’s List (ANGI[2]), which operates a platform to find and evaluate contractors and other service providers, has had a tough time lately. Since reaching a 52-week high of $18.85 in February, ANGI stock has been under tremendous pressure. Currently the shares are trading just below $11.

Yet there are good reasons for the terrible performance. After all, the company has suffered from turmoil in management’s senior ranks, with the departures of Chief Technology Officer Manu Thapar and Chief Financial Officer Robert Millard. But growth has also been slowing down. In the latest quarter, revenues increased by 39% to $72.7 million, which compared to a 57% rate in 2013. The company also continues to lose money, with the net loss for Q1 coming to $3.8 million.

True, ANGI stock looks pretty cheap, as the price-to-sales ratio is only 2.4. This compares to 19 for Yelp (YELP[3]). Despite this, ANGI stock is probably something to avoid. The business model — subscriptions — remains a big issue. Let’s face it, consumers have a variety of free alternatives, such as RedBeacon, Google (GOOG[4]), eBay (EBAY[5]), HomeAdvisor and yes, Yelp. Even Amazon (AMZN[6]) is moving into the market.

With all this competition, it will be tough for ANGI to convince its customers to keep paying up.  In other words, it’s a good bet that there will be erosion of the business.

Social Stocks #2 — LinkedIn (LNKD)

social stocks to sell, linkedin stockLinkedIn (LNKD[7]) is the world’s largest online professional network. But this doesn’t necessarily mean you should buy LNKD stock. The main reason? The company is finding it much harder to crank out strong growth. The full-year guidance for revenues is a mere 36%, which is down from the heady 80%+ rates during the past couple years.

The company is trying to reverse the slowing growth with heavy investments in R&D and marketing. But these efforts have mostly been a drag on profitability, and yet LNKD stock maintains a high valuation that is based on continued growth. The forward price-to-earnings ratio is at 62 and the price-to-sales ratio is at 11.

Granted, there is a massive opportunity in China. However, this is still in the early stages, and it will likely take a few years to move the needle. So in the meantime, LNKD stock could remain under pressure or trade in a range. For the most part, there there are no near-term catalysts to rev things up.

Social Stocks #3 — Groupon (GRPN)

social stocks to sell, groupon grpn stockGroupon (GRPN[8]) has undergone a massive transformation, moving away from its daily-deals business to becoming a search engine for offers. But the impact on the stock has been brutal. For the first half of 2014, GRPN stock is off by 46%.

Still, this could be an opportunity for investors. For the most part, GRPN is turning into a mobile juggernaut. In Q1, the app was downloaded more than 10 million times (the user base is more than 80 million). In fact, about 54% of all transactions come from mobile.

This should actually be no surprise. Mobile is really a killer app for local commerce and of course, GRPN has an extensive infrastructure for this market, such as with thousands of sales people, sophisticated transaction systems and marketing capabilities.

The valuation on GRPN stock is also extremely attractive. The price-to-sales ratio is only 1.57, which is one of the lowest when it comes to playing the mobile megatrend.

So of all the social stocks we’ve talked about, Groupon is the one that might be worth your investment.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

Tom Taulli is the author of various books. They include Artificial Intelligence Basics and the Robotic Process Automation Handbook. His upcoming book is called Generative AI: How ChatGPT and other AI Tools Will Revolutionize Business.

Endnotes:

  1. SOCL: /stock-quotes/SOCL-stock-quote/
  2. ANGI: /stock-quotes/ANGI-stock-quote/
  3. YELP: /stock-quotes/YELP-stock-quote/
  4. GOOG: /stock-quotes/GOOG-stock-quote/
  5. EBAY: /stock-quotes/EBAY-stock-quote/
  6. AMZN: /stock-quotes/AMZN-stock-quote/
  7. LNKD: /stock-quotes/LNKD-stock-quote/
  8. GRPN: /stock-quotes/GRPN-stock-quote/

Source URL: https://investorplace.com/2014/07/social-stocks-angi-grpn-lnkd/