Social Media Stock Tracker: Investors Bet on Upcoming Q4 Results

The social media sector performed well this week with an average weekly gain of 2% as investors continued to make bets ahead of upcoming earnings. In the next several weeks, several notable companies (including EBAY, GOOG, AAPL, NFLX, YHOO, and FB) will report Q4/12 earnings and set the tone for investor sentiment on the social media and Internet sectors over the next several months.

WEEKLY STOCK PERFORMANCE
The social media sector performed well this week with an average weekly gain of 2% as investors continued to make bets ahead of upcoming earnings. In the next several weeks, several notable companies (including EBAY, GOOG, AAPL, NFLX, YHOO, and FB) will report Q4/12 earnings and set the tone for investor sentiment on the social media and Internet sector over the next several months.
FB continued to ride positive research views in the past few weeks with a one-week gain of 10%. The stock is up 19% in 2013 and FB announced a mystery press event next week, though we do not think it will be meaningful in the short-term (see below). Out of the other top stocks, we like LNKD’s performance based on achieving 200m registered members and acquiring new positive research coverage.
CHANGE

SINCE JAN 4

CHANGE

SINCE JAN 4

FB
BIDU
P
LNKD
SINA
ANGI
YELP
JIVE
10.3%
8.0%
5.5%
4.3%
4.2%
4.2%
2.8%
1.7%
RENN
GRPN
OPEN
GOOG
MM
ZNGA
WEBM
YHOO
1.6%
1.5%
0.8%
0.3%
(0.7%)
(1.5%)
(2.6%)
(2.9%)
COMMENTARY
Facebook
  • FB’s shares are up an astounding 60% in the two months since the company’s lock-up expiration on November 14 and the $38 IPO watermark is in sight ahead just weeks ahead of its Q4 earnings. The IPO price is more psychological than anything, but we can be very confident that FB’s management is cognizant of that target and is attempting to manage expectations appropriately (based on its previous interaction with analysts during its IPO process).
  • This means that to breakthrough the $38 price before May 18, 2013 (the anniversary of its IPO date) will require strong Q4/12 numbers (to be released on January 30, 2013) since FB’s Q1 is typically weak due to ad seasonality and other factors. Given the sad state of how the market works presently, this also means that FB’s numbers will be judged against consensus numbers, more than anything else.
  • In recent weeks, the trend among research analysts has been positive, with several upgrades and a slight revision of revenue projections upwards. Consensus revenues for Q4/12 are now $1.52bn, which increases the re-acceleration projection on a year-over-year basis (35% in Q4/12 vs. 32% in Q3/12) and now projects a 21% quarter-over-quarter growth vs. a 7% gain in Q3/12. With the new consensus numbers, if we again assume that the payments and fees revenue are flat for Q4, then that means to meet expectations, FB’s Q4/12 advertising revenue would need to grow 24% q/q (which is something that FB has not achieved in eight quarters).
  • There have been some anecdotal reports that overall advertising appetite on FB has been strong throughout the last quarter, but there is realistically no evidence that suggests this type of information has been highly correlated to FB’s financial numbers in the past. FB’s core business is still shifting rapidly to mobile and most near-term projections around these numbers are educated guesses at best.
  • Sentiment is now overly positive on FB and there are few voices discussing the potential negative issues for the company (decreased engagement and basically flat users numbers users in the primary North American market), which reminds me of the mood during this time last year. My opinion is that engagement numbers will be alarming over the second half of 2013, but not necessarily any worse in Q4/12 than they have been in recent quarters.
  • Further, advertising buyers will likely be slow to react to any signs of potential decreased user engagement, giving investors enough time to react if/when user numbers are down. I also believe that the mystery press event next week is meaningless for the stock, at least at this time (ahead of earnings). We will discuss declining user growth in more detail in an upcoming newsletter.