Winnipeg Free Press - PRINT EDITION

Social-media share value nosedives

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SAN FRANCISCO -- Social media, social outcast?

The once-sizzling sector could be on the outside looking in for investors following a string of disappointing financial results and a sharp slide in stock prices the past two months. Shares of Twitter, Pandora and LinkedIn have sunk more than 30 per cent. Even Facebook, riding a wave of mobile advertising growth, is off its March high by nearly 20 per cent.

Online recruiting site LinkedIn, until now a dependable performer, was the latest major name to deepen doubts among many on Wall Street. Last Thursday, it posted a $13.3 million loss and its slowest revenue growth in four years.

LinkedIn's results come amid questions about the immediate financial prospects for social-media companies. Since early February, those stocks have sputtered after an extended streak from 2012, according to the Global X Social Media Index ETF.

"These stocks were winners," said Arvind Bhatia, an analyst at financial-services firm Sterne Agee. "Invariably, as soon as they show any kind of slowdown, the momentum investors get out."

Aaron Kessler, an Internet analyst at Raymond James, expects the fallout to last weeks, maybe months, before "momentum" investors come back. Many have been spooked by steep company market valuations that don't match revenue projections, he said.

Bhatia framed the situation as being bigger than social media. The reverse stampede has also battered shares of Amazon.com, eBay, Yelp and Netflix, he says.

"It's a re-rating of the entire sector," added Tom White, an analyst at market researcher Macquarie. The recent malaise extends to Internet and software stocks, including IPO newbies GrubHub and Rocket Fuel.

Yet the focus has been squarely on social media following a spate of earnings reports and the surprise resignation this past week of Google's Vic Gundotra, who was the company's senior vice-president for social.

Days before LinkedIn's first-quarter results, Twitter shares were eviscerated when it whiffed with middling user growth. It now has 255 million monthly active users. (Twitter shares tumbled 18 per cent on Tuesday and another 3.75 per cent on Wednesday after its six-month stock lockup was lifted, allowing major shareholders to sell their holdings.)

The future of social network Google+ is rife for debate after its leader abruptly quit. Its 300 million members, while an impressive figure, is light years behind Facebook's 1.28 billion.

Indeed, the silver lining for social media is the social-networking giant, whose recent prowess in mobile underscores "solid fundamentals," Bhatia said. (The average reported quarterly revenue growth for Twitter, Facebook, Yelp and Pandora was 82 per cent.)

"You cannot find fault in Facebook's results," he said. "And yet its stock went down. It was a case of comparing it to good numbers (from previous results). It happens."

 

-- USA Today

Republished from the Winnipeg Free Press print edition May 8, 2014 B7

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