Social Media Stocks All Take a Hit After Q2 Results

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Last week wasn’t a great one for social media stocks like LinkedIn (LNKD) and Facebook (FB). Indeed, it was a particularly bad week for social media stocks. Seemingly decent earnings news was met with modest disdain from investors, while truly poor earnings and outlooks prompted sharp selloffs from social media names.

Was it a coincidence that Yelp (YELP), LinkedIn, Twitter (TWTR) and Facebook all hit a wall in the wake of earnings, or was it something systemic working against this sliver of internet stocks?

A little of both, most likely.

For anyone who missed the second-quarter earnings news from any of the big four social media names, here’s a quick recap.

Yelp (YELP)

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On Tuesday, online-review site Yelp reported a per-share loss of two cents on $133.9 million in sales, missing estimates for a profit of a penny per share, and falling well short of the four cents per share it earned in the second quarter of 2014.

Though the top line of $133.9 million topped the forecasted figure of $133.2 million, investors just couldn’t get past the outlook. YELP shares closed 25% lower on Wednesday after the company lowered its full-year revenue guidance from a range of $574-$579 million to a range of $544-$550 million.

Fanning the bearish flames was that  announcement that YELP would be killing off its display ad business, which had been struggling for some time. The new focus will be cost-per-click advertising

Facebook (FB)

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Facebook was arguably the most successful of the major social media stocks last quarter, but even its solid results weren’t enough to stave off a sizable dip in the value of FB shares.

When all was said and done, Facebook shares lost nearly 2% of their value on Thursday after posting its Q2 results Wednesday evening. Granted, it reclaimed some of that lost ground on Friday, and managed to recoup a great deal of Thursday’s intraday loss of 5.3%. But it’s clear that any earnings-related bullishness due to FB was doled out before the earnings report was posted.

On that note, Facebook managed to top profit estimates of 47 cents per share by booking earnings of 50 cents per share. Revenue of $4.04 billion also topped expeditions of $3.99 billion, and left the year-ago top line of $2.91 billion in the dust as the social networking site has fine-tuned its ability to sell ads on mobile devices as well as on desktops and laptops.

However, the market was less than thrilled that spending grew a whopping 82% last quarter.

Though 2015 is being called an “investment year” by the company, investors are starting to become concerned the company will have to buy growth rather than cultivate it as the social media market becomes even more saturated.

Twitter (TWTR)

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Twitter, which arguably has lived up to its potential the least of all four of the internet stocks under the microscope here, actually did a few things right last quarter. Namely, revenue was up 61% from the year-ago top line — from $312.2 million to $502.4 million. And its profit of seven cents per share rolled in better than the five cents analysts had modeled.

On the other hand, user growth was essentially flat. While the active headcount of 316 million in Q2 was 15% higher than it was in the second quarter of 2014, that total is only 3% higher than it was in the first quarter of 2015. At its current rate of deceleration, Twitter may be reporting a declining number of monthly users in the foreseeable future … barring any major changes.

Investors aren’t optimistic they’ll see such changes anytime soon, though, as current CEO Jack Dorsey is only (intended to be) a temporary hire, and the search so far for a permanent chief hasn’t exactly been an inspirational process.

The end result? A 14% drop in the value of TWTR on Wednesday.

LinkedIn (LNKD)

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Last but not least, professional social networking name LinkedIn shares fell 10% on Friday. LNKD posted solid second-quarter results, but followed up those numbers with some metrics that painted an alarming picture.

The good news: Last quarter, LinkedIn earned 55 cents per share on $711.7 million worth of revenue, pummeling estimates for a profit of only 30 cents per share and a top line of $680 million. Last quarter’s top and bottom line were also notably better than their year-ago comparables.

The bad news: LinkedIn’s display ad business dropped a stunning 30% on a year-over-year basis, and expenses jumped a painful 53%.

The company is in the midst of an overhaul that’s designed to shore up its long-term problems, but shareholders don’t like the near-term consequences.

Bottom Line for Social Media Stocks

Broadly speaking, though these four social media stocks are often lumped in together, they didn’t fall last week because they were in the same grouping. Each stumbled because of its own, company-specific shortcomings.

That being said, there were two common themes witnessed among these internet stocks as a whole: The ongoing migration to mobile devices can and does affect the way people interact with a website. Also, display ads seem to be less and less productive.

Facebook seems to be the exception to this trend, and FB stock investors are being rewarded for it.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/08/social-media-stocks-yelp-twtr/.

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