Making a big ruckus in this morning's news is the European Court of Justice's ruling that deemed a 15-year-old data-sharing pact between the EU and U.S. invalid. The decision cannot be appealed.
"Legislation permitting...access on a generalized basis to the content of electronic communications must be regarded as compromising the essence of the fundamental right to respect for private life," Europe's highest court said in a statement.
The ruling has significant implications on how internet groups can operate in the 28-member bloc, and will likely force thousands of companies to overhaul their businesses to avoid breaking the law.
Internet stocks have posted substantial losses after a morning market rally proved short-lived. The Nasdaq is down 1.2%.
In addition to Google, which has made new 52-week lows, Facebook (FB -3%), Twitter (TWTR -4.7%), Amazon (AMZN -3.5%), and Netflix (NFLX -3.2%) are among the underperforming names. Other decliners: Z -5.5%. TRLA -5.4%. MELI -5.4%. ZNGA -4.9%. ZU -3.2%. ANGI -3.4%.
The selloff comes even though Goldman upgraded its rating for the sector to Attractive from Neutral today. The firm noted Internet stocks are collectively down 16% over the last 12 months (maybe 18%-19% after today), and that forward EV/EBITDA multiples have contracted significantly.
Internet stocks are selling off in AH trading as Netflix craters in response to its light Q3 subscriber adds and disappointing Q4 guidance, and eBay slumps after providing weak Q4 guidance and reporting only 6% Y/Y Q3 Marketplaces growth.
The number of U.S. tech startups receiving $1B+ valuations in their first financing round rose 133% Y/Y in 1H14, says CB Insights. Meanwhile, PriceWaterhouseCoopers estimates the amount of VC funding directed towards "software" companies (includes a lot of Internet-related funding) totaled $10.1B in 1H14, up from just $4.6B a year earlier. Uber's $1.2B funding round (at a $17B valuation) helped boost PwC's figure.
The breakneck investment pace has led a slew of high-profile VCs to warn valuations have gotten stretched, if not suggest a fresh bubble is afoot. Kleiner Perkins' Randy Komisar: "There's too much capital and there's very few places to invest it ... risk is not being priced properly and so venture capitalists are taking high-risk, high-reward bets."
"No one's fearful, everyone's greedy, and it will eventually end," declared Benchmark's Bill Gurley in a recent WSJ interview. "I think that Silicon Valley as a whole or that the venture-capital community or startup community is taking on an excessive amount of risk right now. Unprecedented since '99."
For their parts, Marc Andreessen and Fred Wilson have warned startups to curb their spendthrift ways. Andreessen: "When the market turns, and it will turn, we will find out who has been swimming without trunks on: many high burn rate co's will VAPORIZE."
Nonetheless, contrasting views remain easy to find. Menlo Ventures' Venky Ganesan: "While we are in an up cycle, we are nowhere close to the top ... There are pockets of irrational exuberance, but for the most part, I think it's actually fine."
Sticking to what we mostly already know about Fed thinking, Janet Yellen - in prepared remarks before the Senate Banking Committee - says interest rates could rise sooner and at a faster pace if labor market strength continues to surprise to the upside. The opposite, she quickly notes, is also true - should data disappoint, policy would be more accommodative than currently anticipated.
Treasurys are zigging and zagging on her remarks, but about flat, and the S&P 500 and Dow remain little-changed. Small caps (IWM -0.7%) and momentum sectors like social media (SOCL -1.1%) and biotech (IBB -1.1%) are selling off as the Fed boss says their valuations "appear to be stretched."
Leading this week's decline are a lot of the same names which led March's "momo" selloff, among them the biotechs (XBI -4.5%) and social media (SOCL -4.4%). Also familiar, small caps (IWM -1.5%) are off more than the other major indexes.
Doing their jobs are the low volatility ETFs like SPLV (SPLV) and USMV (USMV -0.2%), as well as defensive sectors like the utilities (XLU +0.6%).
Raymond James' typically bullish Jeffrey Saut is out with a note calling for the first decent pullback of the year - a 10-12% decline - to commence later this month or early August, and he suggests investors begin raising cash.
Whereas smartphone penetration in the 15 biggest developed markets was at 65% at the end of 2013, it was only 23% for the 15 biggest emerging markets, notes Mary Meeker in a mobile-centric 2014 Internet Trends Report.
Global smartphone penetration has reached 22%, well above 11% penetration for laptops and 10% penetration for desktops. Tablets are still only at 6%, and mobile phones in general at 73%. There were 2.61B global Web users at the end of 2013, and 1.79B smartphone subs.
Mobile made up 25% of Internet traffic as of May 2014, up from 15% a year ago and 10% two years ago. Asia and Africa are respectively at 37% and 38%. Mobile accounts for over 1/5 of online video time (favorable for YouTube).
Internet ad sales grew 16% last year to $116B. Google (GOOG) had a Q1 annualized ad ARPU of $45 (up $3 Y/Y), dwarfing Facebook's (FB) $7.24 (up $2.84), and Twitter's (TWTR) $3.55 (up $1.58). Mobile is estimated to account for 20% of media time spent, and just 4% of ad sales. For Internet, the figures are 25% and 22%.
Other details: 1) Tech firms account for 19% of the S&P 500's market cap - up from 11% 20 years ago, but well below a Dot.com bubble peak of 35%. 2) Web-connected TVs made up nearly 40% of 2013 shipments, up from <10% in 2010. 3) Facebook made up 21% of social media referral traffic in March (per Shareholic), and Twitter just 1%.
Has irrational exuberance given way to panic selling? Internet stocks are off again today, as the Street registers disappointment with earnings reports from AOL, Groupon, Zulily, SouFun, 500.com, and King.
While broader equity markets are only seeing modest declines, tech stocks aren't so lucky. The Nasdaq-100 (QQQ -0.8%) had its lowest print since October this morning before recovering slightly.
Chinese tech stocks (KWEB -4.3%), including 2013 solar high-flyers (TAN -4.2%), are especially hard-hit following a Shanghai selloff triggered by PBOC withdrawals. Other Internet (PNQI -2.3%) and social media (SOCL -2%) stocks aren't faring much better.
Will earnings season come to the rescue? Intel and Yahoo report after the bell today, and Google and IBM after the bell tomorrow.
Aided by King's poor debut and general momentum stock weakness, U.S. and Chinese Internet stocks have fallen hard for the second time this week.
In addition to King rival Zynga and newly-minted VR headset maker Facebook, Twitter (TWTR -7.1%) is among the leading U.S. decliners. Exactly 3 months after reaching a peak of $74.73, shares have fallen below their post-IPO opening price of $45.10. They remain well above their $26 IPO price.
Other U.S. decliners: P -5.2%. Z -6.2%. TRLA -7%. GSVC -4.8%. SVVC -4.1%.
Speaking to reporters ahead of a meeting with the Israeli PM, the President says Russia is in violation of international law and the U.S. is looking at economic and diplomatic steps to "isolate" the country.
EU foreign ministers are brandishing similar threats of sanctions of some sort.
One victim of the Ukraine turmoil: The Global X Social Media ETF (SOCL -2.7%), in part thanks to its 4.2% weighting of Russia's Yandex which is off 13% as Russia's stock dives.
U.S. and Chinese Internet stocks are adding to last week's big losses, as investors continue taking profits following major 2013 gains. Chinese stocks were hit last week by an emerging markets selloff, weak PMI data, and an SEC ban (pending appeal) on audits from the Chinese units of big-4 U.S. accounting firms.
Twitter (TWTR -8.2%), the company bears are most likely to point to when arguing a new Internet stock bubble has formed, is headlining the U.S. decliners. Shares are still up 25% from their post-IPO opening trade of $45.10.
The Global X Social Media ETF (SOCL +1.2%) quickly adds Twitter (TWTR) to its portfolio, the stock comprising 4.57% of its holdings. Topping the fund's list is LinkedIn with 10.12% and Facebook with 9.95%.
The recently-launched Renaissance IPO ETF (IPO +0.4%) counts Twitter as its 10th largest holding with a 2.53% allocation.
The SOCL is up a tidy 53% YTD and has drawn $95M in new assets since August 1. Total AUM now stands at $107M.
Even as Twitter blasts off to a $25B valuation following its much-hyped IPO, U.S. and foreign Internet stocks are giving back some more of the massive 2013 gains that have led many names to trade at steep multiples.
One sign investors in this space are in a profit-taking mood: Zillow (Z -4.3%) and YY both sold off yesterday in spite of delivering Q3 beats (I, II) and above-consensus guidance; Zillow is adding to its losses today. Likewise, SouFun (SFUN -5.4%) has turned negative after providing a Q3 beat and strong guidance.
Notable U.S. decliners: FB -2.4%. LNKD -2.8%. GRPN -4.7% (reports after the close). ZNGA -2.7%. P -3.8%. TRLA -5.4%.
One buyer off Twitter (TWTR) expected to pick up stock five days after the IPO is the $98M Global Social Media ETF (SOCL -1.2%) which has had a big year (+51%) behind the performances of Facebook, LinkedIn, Yelp, and Sina.
Another buyer after the 5th day is the recently-launched Renaissance IPO ETF (IPO -0.4%), though a competing IPO fund, the First Trust U.S. IPO Index ETF (FPX) aims to skip a lot of the noise surrounding IPOs - it will have to wait until December 20 to pick up Twitter shares, a strategy which worked beautifully for the Facebook offering. The man behind the index for the fund, Josef Schuster is undecided about Twitter at the moment and says he will likely pass should the stock have a pop of more than 60% in the month following the IPO.