We have made our way through the first half of earnings season. Without question, the biggest highlight so far is the sheer devastation we have seen in social media stocks, with the exception of Facebook (FB), which sold off a little after reporting numbers. But that was nothing compared to what happened in the other stocks in this once-strong group.
The first causality was Twitter (TWTR). It was slated to release earnings after the bell Tuesday, but the numbers were leaked and released shortly before the close. First there was confusion; no one knows what was going on because they thought a third-party company had tweeted Twitter's numbers before the bell. The stock immediately plunged 6%, then, amid the confusion, the company reached out to the NYSE and asked to halt the stock. Within an hour, the stock reopened and was immediately down 20% before you could blink an eye. Why? Investors didn't like the numbers and the company had lowered guidance. But a 20% shellacking because of guidance seemed a bit excessive -- maybe the fact that the numbers were leaked were to blame? No one knew that Twitter's implosion was just the beginning.
The second grenade that went off was Yelp (YELP). The stock plunged nearly 25% on Thursday after releasing disappointing first-quarter results. It missed on multiple earnings fronts, and was not able to charge as much as initially thought for advertising. In addition, the company's international unit is not growing as fast as expected. In short, Yelp is not able to monetize its users, thus, not able to justify its valuation.
The third social media casualty was LinkedIn (LNKD). The business-networking platform plunged more than 20% Friday after reporting first-quarter results and lowering guidance. The company lowered second-quarter adjusted earnings to $0.28 per on revenue of $670 million to $675million. That was a huge miss; analysts were expecting EPS of $0.74 on revenue of $718 million, hence the big selloff Friday.
The bottom line is that this space is in serious trouble and the stocks are likely dead money for a long time to come. Looking at historical precedent, whenever a group suffers this much damage (technical and fundamental) in such a small amount of time, it takes several quarters, if not years, to recover -- if it recovers at all. This once-strong area is off our radar on the long side for now. We will revisit down the road, if or when the damage is repaired.
