The social media sector was flat this week as FB’s Q4 results failed to impress investors who expected dramatic gains in mobile revenue (see commentary below) and YHOO also failed to excite with its earnings and 2013 outlook. However, for the calendar year of 2013, the social media sector is still up 8% and next week we will see notable earnings from ZNGA, YELP, and LNKD. ANGI led in weekly performance with a gain of 8%, mainly from a new payments partnership with Square and an upgrade from analysts ahead of its earnings in two weeks.
Amazon, though not in our social index, reported slightly vexatious Q4 earnings that missed on consensus revenues and EPS (missing consensus of $0.21 by $0.07), driving the stock down 7% this week. However, margin improvements and long-term outlook for Amazon Web Services buoyed the stock from taking a larger dive and investor sentiment remains somewhat bullish on the company.
Earnings Season – Facebook
- FB announced their Q4/12 earnings to a lukewarm reception this week as the stock slightly floundered with a 4% loss. Though the company’s headline numbers beat consensus revenues of $1.52bn with $1.58bn, and beat EPS by $0.02 per share, after adjusting for the one-time extra month of Payments & Fees revenue, the results were closer to being in line with expectations. Overall advertising revenue had a solid result with a 22% q/q gain vs. a 7% gain in Q3/12, but it was not enough to assuage investor concerns of growing expenses/headcount/investment potentially faster than revenue in 2013.
- Heading into the quarter, we noted that the most important driver of near-term investor sentiment would be the mobile component of News Feed ads and how they related to consensus. The result was $306mn, falling short of the consensus of $354mn (which to be fair, as we have noted, is a wild guess by analysts). Even though mobile revenue grew from $152mn (14% of ad sales) in Q3 to $306mn in Q4 (23% of ad sales), the disappointing number tempered some of the recent FB hype. Indeed, most FB bulls were looking for numbers closer to $400mn, which probably would have driven the stock near $40. Still, FB’s shares are up 52% in the two months since the company’s lock-up expiration on November 14.
- Mobile users continued to grow rapidly, with mobile MAUs now accounting for 64% of the FB’s total MAUs, and the company has now had three quarters in a row of accelerating growth of mobile-only MAUs (23%, 24%, and 25% q/q growth for Q2/12, Q3/12, and Q4/12, respectively). This mobile focus exacerbates any slower than expected growth of mobile revenues, as FB needs to demonstrate that the cannibalization of its desktop ad revenue due to the user shift to mobile is not a long-term trend.
- User engagement, although not overly impressive, was steady compared to recent quarters, with North America growing MAUs 2% q/q and 8% y/y (very similar to Q3) and European MAUs growing 3% q/q and 14% y/y (also very similar to Q3). We maintain that engagement will continue to be a very important indicator for the company’s performance throughout 2013 and we see the possibility of metrics coming under pressure in the second half of 2013. ARPU numbers in both of these core markets accelerated in Q4, but importantly, once adjustments are made for an exaggerated Payments & Fees segment (due to a one-time extra month of reporting), growth was actually almost identical to growth in the previous quarter.
Earnings Season – Yahoo
- YHOO announced its Q4/12 earnings, reporting revenues in line with expectations and beating consensus non-GAAP EPS of $0.27 by $0.05. With 2013 guidance also in line with consensus numbers, investors are looking for stock drivers such as compelling M&A, further unlocking of the Asian assets, or an updated and competitive mobile strategy. The company reiterated its focus on growing usage and users (international and demographically), but the slow pace thus far and the lack of tangible results is beginning to wear on investors.
FB released its Q4/12 earnings with a beat of consensus revenues and EPS, but a less than expected mobile component of revenues, plus concerns over the potential growth of expenses in 2013 led to a lukewarm reaction
The company is rolling out a new Gift product called Cards, which are plastic gift cards that work at retailers and can be refilled when users are sent additional gift cards. The card data will be integrated into FB’s apps and notification preferences for easy tracking
FB shutdown access for Wonder, a social search app from Yandex, as the company maintains that it will block apps that replicate FB’s core functionality and do not allow users to easily share back to FB
AMZN reported Q4 earnings, missing consensus revenues and EPS (missing consensus of $0.21 by $0.07), though outlook on future margin improvements and competitive positioning for Amazon Web Services remained solid
In a licensing agreement with PBS Distribution, AMZN secured exclusive rights to Season 3 (and any future seasons) of Downton Abbey, the most watched TV series of all time on Amazon’s video service
ANGI agreed to a partnership with Square in which its Business Center app for local merchants will now support payments by Square
Jack Abraham, the head of EBAY’s local services division, has resigned
A group of iPhone users in the UK is set to launch claims against GOOG in the UK over the company allegedly circumventing AAPL’s security settings in order to track their behavior
It appears that GOOG is planning to launch paid subscription channels with professional content in the next quarter or so, which would cost users $1 to $5 a month
In a Wall Street Journal survey of small businesses, 41% said that LNKD had positive impact on their businesses versus 16% for FB
The company announced that it would raise $400m in senior debt notes to lower its overall cost of debt and partially fund its original content development
NFLX launched its ‘House of Cards’ series, a high-profile gamble for the company on original content, to initial favorable reviews
The company announced the acquisition of Foodspotting, an app for finding and sharing restaurant dishes, for approximately $10mn
Path agrees to a settlement with the FTC for an $800k fine (and establishing new privacy protocols and auditing) over a violation of collecting personal information of 3,000 children under the age of 13 without parental consent in 2012
The company is testing a redesigned site to increase engagement by making navigation easier and showing more related images to pinned images
Although unconfirmed, it appears that Blackrock has invested $80m into Twitter at a valuation of $9b. Somewhat unconventionally, the proceeds will be used to allow a small group of Twitter employees to liquidate some of their stock in an early windfall
YHOO announced its Q4/12 earnings, reporting revenues in line with expectations and beating consensus non-GAAP EPS of $0.27 by $0.05. With 2013 guidance also in line with consensus numbers, investors are looking for stock drivers such as compelling M&A, further unlocking of the Asian assets, or an updated and competitive mobile strategy
Brian Reynolds, ZNGA’s Chief Games Designer, has left the company, continuing the significant talent exodus in the last six months
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