Social Media Stock Tracker: Gains for Angie’s List | Instagram’s SNAFU

The social media sector was up an average of 2% this week and is heading towards 2013 with an average gain of 13% in 2012, despite incredible volatility along the way. While recent negative sentiment on AAPL shares continued to overshadow the sector, ANGI led the week with a 12% gain, mainly as a result of increased positive equity research coverage.

WEEKLY STOCK PERFORMANCE
The social media sector was up an average of 2% this week and is heading towards 2013 with an average gain of 13% in 2012, despite incredible volatility along the way. While recent negative sentiment on AAPL shares continued to overshadow the sector, ANGI led the week with a 12% gain, mainly as a result of increased positive equity research coverage.
Instagram’s SNAFU was widely discussed (more below), but FB’s decrease of 2% was more likely on news of the halting of its mobile ad network trial and rumors of an impending launch of AMZN’s potentially powerful ad exchange. YELP’s stock was probably hurt by FB’s addition of location-based local search functionality to its app, though we note that YELP has an unparalleled user review database and is up 27% on the year.
CHANGE

SINCE DEC 14

CHANGE

SINCE DEC 14

ANGI

JIVE

MM

SINA

P

RENN

OPEN

GOOG

11.9%

10.8%

6.3%

6.1%

4.9%

4.6%

2.3%

1.9%

BIDU

LNKD

YHOO

WEBM

FB

GRPN

YELP

ZNGA

1.3%

1.0%

(1.5%)

(1.5%)

(2.1%)

(2.2%)

(2.4%)

(8.3%)

COMMENTARY
Facebook
  • After public backlash over a change of terms of service that spread fears of the potential selling of users photos, Instagram reverted to previous language to assuage threatening defectors. We’ve previously discussed how FB’s focus still remains on solving the mobile problem despite strong growth in mobile sponsored stories in the two quarters.
  • A month ahead of Q4/12 earnings, we maintain that in the near-term, the company will continue trade on sentiment and the shares could be volatile. It is useful to note that between its Q2/12 and Q3/12 earnings announcements, the stock dropped between 9% and 35%, yet between Q3/12 earnings and today, FB traded in a range of negative 3% to positive 48%. So we know that there are significant opportunities for gains (and losses) from quarter to quarter for FB holders.
  • We also can confidently state that the stock does not trade on long-term fundamentals, unless one believes that the fortunes and strategic positioning the company deserve to shift $20bn to $30bn in market value every few months. Wall Street is completely focused on the short-term, and this sadly means the consensus estimates matter. We believe that revenues (and more specifically, revenue growth) are more important than earnings for the company at this time.
  • Presently, consensus revenues for FB’s Q4/12 are $1.51bn, which essentially projects a slight re-acceleration on a year-over-year basis (34% in Q4/12 vs. 32% in Q3/12). Even though this would be nominal, this has been a significant reason for the growth-oriented narrative of the stock this quarter that has been floating around (i.e. “the business is picking up and growth is starting to crank”).
  • Consensus also projects 20% quarter-over-quarter growth in comparison with only a 7% gain in Q3/12. How likely is this? Looking at the same two quarters in 2011 for FB shows a 19% q/q gain in Q4/11 and 7% q/q gain in Q3/11. Yes, Wall Street is really not that imaginative when no guidance is given from a company. Although gaming revenue (payments and fees) collapsed for FB in Q3/12 (down 8% q/q), the key piece is advertising which accounts for roughly 86% of its total revenues. Advertising showed unimpressive growth of 10% q/q in Q3/12, but to be fair, this is a typically weak quarter for FB in terms of seasonality.
  • FB bulls should note that if one assumes that the payments and fees revenue will be essentially flat for Q4, then that means to meet (not beat) expectations, FB’s Q4/12 advertising revenue would need to show strong growth of 23% q/q and continued re-acceleration on a y/y basis of 42%. We will continue to break down FB in coming editions of this weekly report, analyzing the effects of continued mobile usage, user stagnation, ARPU shifts, as well as changing competitive environments and the potential upside in products such as FBX, search, and gifts.