Social Media Stock Tracker: Facebook, Google, Yelp on the Rebound

The social media sector was up an average of 4% this week as it rebounded from last week’s negative performance. There were no real fundamental drivers to value that standout, but it is notable that continued downward pressure on AAPL shares (perhaps unfounded) did not drag the sector down. Also of interest is that WEBM (the parent company of Social Times) rebounded strongly with a 15% gain on the week.

WEEKLY STOCK PERFORMANCE
The social media sector was up an average of 4% this week as it rebounded from last week’s negative performance. There were no real fundamental drivers to value that standout, but it is notable that continued downward pressure on AAPL shares (perhaps unfounded) did not drag the sector down. Also of interest is that WEBM (the parent company of Social Times) rebounded strongly with a 15% gain on the week.
CHANGE

SINCE DEC 7

CHANGE

SINCE DEC 7

WEBM
BIDU
SINA
P
OPEN
GRPN
ReNN
LNKD
14.7%
9.0%
8.1%
7.3%
5.4%
5.2%
4.2%
3.0%
GOOG
YHOO
YELP
ANGI
JIVE
ZNGA
FB
MM
2.6%
2.3%
2.2%
0.9%
0.1%

(0.4%)
(2.4%)
(2.5%)

COMMENTARY
Facebook
  • It is difficult to justify the 35% gain on FB shares since its significant lock-up expiration on November 14 (there was an additional small lockup this week of 156m shares). The massively increased supply should have put pressure on the stock, but the shares have soared despite insider sales such as Sheryl Sandberg’s recent disposal of almost 5% of her total stake.
  • While FB’s initiatives in search, a broad ad network, and the expanded launch of Gifts offer very interesting potential over the next 12 months, they are still nascent and the core of its business remains the same. With the focus still on monetizing mobile while US users are essentially plateauing and Sponsored Stories is potentially reaching a limit (before cannibalizing user engagement), FB has spent the last several weeks cleverly setting itself up to monetize Instagram by essentially stripping users of their right to approve changes in the future (see news below) so it can implement future commercial integration more easily.
  • Despite the inclusion of the stock to the NASDAQ 100 this week, there was negative pressure on the shares (down 2.4%) and we think that the stock will continue to trade on sentiment over the next month, ahead of its Q4 earnings, rather than on fundamentals, which means a potentially volatile ride.
Google Maps & Yelp
  • The Google Maps app for iOS was finally released this week, where it skyrocketed to the top app status, with strong positive reviews. With more expected iOS 6 upgrades, but with less overall usage on AAPL’s native map application, speculation has increased that YELP’s mobile efforts will suffer (as YELP is tightly integrated into Apple Maps). Further, with continued rumors of Foursquare’s further integration or acquisition by AAPL, the assumption is that YELP will suffer.
  • However, we note that YELP is on track to re-accelerate its revenues in Q4, and it is the clear leader in local review content by a significant margin. Even prior to iOS integration, 40% of YELP searches were through mobile, so any incremental value YELP gains from its AAPL partnership are a positive to an already impressive position (mobile searches increased to 45% at the end of September). YELP has built a company with unique assets that could be attractive to potential acquirers: there are few $1.2b companies that are strong competitors to GOOG.
  • Going forward, YELP is well positioned to continue to rapidly capture the online shift of the local advertising market. Its value will not be driven by Google Maps, but instead on its ability to begin to monetize its already impressive mobile platform in a significant way and show that it can commercialize international markets with the same growth rates that it undertook in the US.
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KEY DEVELOPMENTS IN SOCIAL & INTERNET
Facebook
PRODUCT
FB updated its Android app, eschewing HTML5 for a native app that performs faster and more responsive than its previous version, and also released an incrementally faster iOS app

PRODUCT
FB updated its Android app, eschewing HTML5 for a native app that performs faster and more responsive than its previous version, and also released an incrementally faster iOS app

PRODUCT
Instagram announced an integration with Foursquare that places a Foursquare button that allows direct clicks from Instagram venues to Foursquare’s app

PRODUCT
After testing its Gifts service for a few months, FB launched the service to all US users

PRIVACY
A user vote on data-sharing/privacy policies failed to reach the binding threshold, even though 88% of FB users voted against them, so FB will implement changes that essentially strip users of the right to vote against other changes in the future

PRIVACY
FB made privacy-related changes by eliminating the ability for users to hide themselves from search queries within the site, while at the same time adding new shortcuts to block users and easier ability to view and control comments

STRATEGY
The company confirmed that it intended to monetize Instagram in the future, but did not confirm whether this would be through ads or another method

STRATEGY
nstagram made another change in relation to Twitter by disabling the ability to display its photos in users’ Twitter stream

FINANCE
156m shares were released in another lockup expiration

FINANCE
FB shares were officially added to the NASDAQ100 index