Social Media Stock Tracker: Investors Bet on Upcoming Q4 Results

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 4CHANGE SINCE JAN 4 FBBIDUPLNKDSINAANGIYELPJIVE 10.3%8.0%5.5%4.3%4.2%4.2%2.8%1.7% RENNGRPNOPENGOOGMMZNGAWEBMYHOO 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. KEY DEVELOPMENTS IN SOCIAL & INTERNET Facebook Product The company began testing a new profile page design in New Zealand with columns that separate interactions and updates with recently activity Product Further test cases were reported showing that FB continues to test iterations of a paid messages service to users that are not friends in the network Data FB noted that it will now only report its app user numbers in broad tiered thresholds instead of to the nearest 100,000, and also noted that its updated Instagram API will no longer report usage Data FBX is performing 36% better than Google's ad exchange, according to data from Triggit based on a six week study of 76m ad viewers Amazon Product The company launched a new feature to its music service called AutoRip, which automatically gives users free MP3 versions of CDs they purchase from AMZN Apple Data AAPL announced that customers have downloaded nearly 20 billion apps from its App Store in 2012, with over 2 billion downloads in December 2012 and that there are over 500 million active iTunes accounts AT&T Product The company launched a movie streaming service for its subscribers called the U-verse Screen Pack for $5 a month Google Product The company noted that it would stop blocking Windows Phone 8 users from accessing Google Maps on Internet Explorer mobile (it had been previously routed routing IE mobile users to Google.com due to poor Google Maps functionality) Product The company launched Zavers, a digital coupon solution that enables retailers and manufacturers to track and analyze customer coupons, based on technology from its 2011 acquisition of Zave Networks Product GOOG launched integration of its Field Trip app for Android with location-based offers from Scoutmob Product Google+ Hangouts On Air finally enabled a full screen default option for viewers Product GOOG launched free public WIFI service in New York City's Chelsea neighborhood Legal Free, a large ISP in France, was ordered to disable its ad-blocking software for its subscribers due to complaints from GOOG and several French online news providers (France's government called the ISP's ad-blocking software “censorship”) Legal Based on comments from EU antitrust regulators, GOOG will have to change the presentation of its search results in Europe to eliminate the alleged preferential treatment given to its services Groupon Product The company added Groupon Payments functionality to its Android app, which includes the ability to redeem Groupon deals, scan barcodes, view transaction history, and assess deal analytics IAC Deal The company acquired Tutor.com, a network connecting students and tutors, for an undisclosed amount LinkedIn Data LNKD noted that it now has 200m registered users, up from 187m in November Netflix Product NFLX announced a licensing agreement with Warner Bros. Television Group for content of serialized dramas such as "Revolution", "Political Animals", and "666 Park Avenue" Product The company added a limited number of 3D movies available for streaming, but only for customers who use NFLX's own content delivery network, Open Connect Product After President Obama signed an amended version of the Video Privacy Protection Act which now completely sets NFLX free to integrate accounts with FB's Open Graph Product The company presented a demo of its personalized profiles feature for households sharing a Netflix account at the CES conference Legal In lawsuit between GameFly and the Postal Regulatory Commission, a federal appeals court ruled that Netflix has an unfair advantage from the U.S. Postal Service's special handling of its DVDs (in comparison with GameFly's packages or other normal mail) and ordered postal officials to remedy the discrimination Shutterfly Deal The company acquired ThisLife, a cloud-based photo and video storing and sharing company, for an undisclosed amount Twitter Product The company announced that it would integrate human categorization of trending news topics by using AMZN's Mechanical Turk service, to help improve its relevancy XING Deal LinkedIn competitor, XING, acquired kumunu, an employer reviewing service, for $12.3m Yahoo Data According to data from comScore, YHOO's November and December search traffic fell 28% and 24% respectively on a year-over-year basis, and Yahoo mail traffic was down 16% and 12% for the same period People The company hired Sandy Gould, formerly of Disney/ABC, as senior VP of global talent acquisition and development Disclaimer The user acknowledges that he/she is not relying on any content or information contained in the foregoing report for any financial, tax, legal, accounting, or other business matters, and will rely on the advice of its own professionals and advisors for such matters. The user acknowledges that the above reports are for informative and/or entertainment purposes only and the mention or reference of any company does not imply an investment recommendation. The user acknowledges that under no circumstances is any content of the reports to be construed as an offer, solicitation, or recommendation to buy, sell, or solicit the purchase or sale of any securities of the companies mentioned. The user acknowledges that the information contained in the reports is obtained from sources believed to be reliable, but its accuracy and completeness, and that of the opinions based thereon, are not guaranteed. WebMediaBrands and the author will not be liable for any economic loss that may be sustained based upon the reliance of any material published in the reports.

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Social Media Stock Tracker: Investors Bet on Upcoming Q4 Results

Nathan Drona

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