Social Media Stock Tracker: Lukewarm Reaction to Facebook Results

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.

WEEKLY STOCK PERFORMANCE
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.
CHANGE

SINCE JAN 25

CHANGE

SINCE JAN 25

ANGI

ZNGA

GRPN

JIVE

GOOG

P

LNKD

BIDU

8.0 %

7.6 %

5.1 %

3.1 %

2.3 %

1.5 %

0.5 %

0.4 %

OPEN

YELP

SINA

RENN

YHOO

FB

WEBM

MM

(0.1%)

(0.8%)

(1.4%)

(2.9%)

(3.5%)

(4.4%)

(4.8%)

(6.7%)

COMMENTARY
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.
KEY DEVELOPMENTS IN SOCIAL & INTERNET
Facebook
Earnings
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