Monday's market sentiment was driven by extreme greed with Fear & Greed Index at 93, which had decreased from the previous close of 94. As reported by CBOE, the total put/call ratio was 0.97 for the day. The index put/call ratio was 1.01, and the equity put/call ratio was 0.76. The CBOE volatility index (VIX) put/call ratio was 0.46. In the following, top stocks had been identified through our daily options scanning process, with the scanning criteria where the daily call volume ratio was above 2.00 (2x of the average call volume) with a call volume above 10,000.
Average Call Volume
Daily Volume Ratio
Facebook Inc. (FB)
LinkedIn Corporation (LNKD)
Source: Schaeffer's Research
Facebook is the world's largest online social network with over 900 million monthly active users. According to most third-party reports, Facebook has more than 500 million daily users spending more time on facebook.com than any other websites. In 2012, Facebook became the most popular app in the United Stated and ended the year with more than 85 million unique adult visitors on Android and iOS, which is about 11 million more unique visitors than Google Maps. Investors are expecting more revenue from mobile advertising as Facebook is still in the early stages of developing ads for users who access Facebook via mobile devices. FB closed at $32.47 with 2.95% gain on January 28, 2013. FB had been trading in the range of $17.55-$45.00 since its IPO.
- On January 28, 2013, Raymond James analyst Aaron Kessler raised his rating on FB to outperform from market perform, citing "expectation for increasing monetization driven by mobile, new ad formats and international." Sterne Agee analyst Arvind Bhatia also reaffirmed a buy rating. Facebook reported that 14% of its total ad revenue was derived now from its mobile business, which is crucial for Facebook while investors demand a clear path for Facebook to grow its mobile advertising. Kessler now estimates mobile ads to make up about 25% of Facebook's total ad revenue while Bhatia expects Facebook's mobile revenue to grow by more than 75% from the previous quarter according to MarketWatch's report. The analyst wrote that Facebook is "well positioned to benefit from two secular trends in advertising - the shift from offline to online advertising and the increasing importance of a social context in online advertising."
- Both Yahoo (YHOO) and Google (GOOG) reported better-than-expected earnings. As reported on January 28, 2013, Yahoo's adjusted EPS of $0.32 beat the $0.27 average of analyst estimates from Thomson Reuters. Yahoo reported fourth-quarter profit of $272 million on revenue of $1.22 billion compared with a profit of $295 million on revenue of $1.17 billion a year ago. On January 22, 2013, Google reported Q4 EPS of $10.65, which was better than analysts' estimate of $10.52. The consolidated revenue increased 36% to $14.42 billion for the quarter as compared with the same quarter a year ago. An updated ex-TAC revenue number for the quarter is $12.16 billion versus the consensus estimate of $12.36 billion.
- Technically, FB is bullish. The MACD (12, 26, 9) indicator turned bullish on Monday. The momentum indicator, RSI (14), was showing a strong buying momentum at 69.81. FB was trading above its 50-day MA of $27.66.
FB is expected to report earnings on January 30, 2013, after the market close. Analysts, on average, are expecting an EPS of $0.15 with revenue of $1.52B. FB had one positive surprise in the past 2 quarters.
LinkedIn Corp is a professional network on the Internet with more than 90 million members in over 200 countries and territories. LinkedIn is able to monetize its user base better than most social networking companies. The company's business model has a wide-moat as users may never leave. LNKD closed at $127.20 with 2.76% gain on January 28, 2013. The volume of 2.61M was 1.72x of 30 day average volume of 1.52M. LNKD had been trading in the range of $71.06-$127.45 in the past 52 weeks.
- Growing digital advertising spending. Research firm eMarketer recently reported that global digital advertising spending topped the $100 billion mark in 2012. eMarketer also projects digital ad spending to increase another 15.1 percent in 2013 for a total of $118.4 billion.
- Continued strong growth. LinkedIn reported revenue from marketing solutions totaled $64 million in the third quarter of 2012, a year-over-year increase of 60 percent.
- Problem solved. The company has finally managed to solve its click jacking flaw, which had the ability to allow hackers to trick users into removing their friends on the site. This also forced users into clicking something harmful while surfing the site.
- On January 24, 2013, JG Capital initiated coverage on LNKD with a Neutral rating and a $135.00 price target and commented, "LinkedIn.com is the world's largest professional social network with >187mm members, growing significantly from 2mm members in 2004. Given LNKD's TAM of professionals worldwide is 640mm, we think there is still a tremendous growth opportunity. … We think EBITDA margins can increase to 30%+ in the next five years, driven by high margin self-service advertising, subs revenue and leverage. … While we love LNKD's business, we are concerned with very high expectations coming into the results on Feb 7th."
- Technically, LNKD is bullish. The MACD (12, 26, 9) had been showing a bullish trend and the MACD difference diverged on Monday. The momentum indicator, RSI (14), had been showing a strong buying momentum and closed at 79.29. LNKD was trading above its 50-day MA of $112.71 and 200-day MA of $108.21.
LNKD is expected to report earnings on February 7, 2013, after the market close. Analysts, on average, are expecting an EPS of $0.19 with revenue of $279.44M. LNKD had three positive surprise in the past 4 quarters.
Key Stats and Valuation Comparison for FB and LNKD
The key stats and valuation will be compared for these Internet companies by using the data obtained from Morningstar and Yahoo! Finance.
Quarterly Revenue Growth (%, yoy)
Operating Margin (%), ttm
Net Margin (%), ttm
Source: Yahoo! Finance and Morningstar
Note: All numbers/prices are quoted from the closing of January 28, 2013 with the data provided from Barron's, Morningstar, Schaeffer's Investment Research, Inc., Google Finance, and Yahoo! Finance. Investors and traders are recommended to do their own due diligence and research before making any trading/investing decisions.