What Social Media Stock Should I Buy Post Q1 Earnings?
Seeking Alpha Analyst Since 2015
Matthew Marino is an individual investor who is a current high school teacher of business and computers. He holds a BA from Stockton University, MBA from Georgian Court University, MeD from Bowling Green State University.
At the end of April many social media stocks had their stock prices dip as a result of Q1 earnings. In some cases these stocks met expectations, but tempered future expectations. In other cases these stocks failed to live up to expectations. At this time all of these stocks are at lower than expected prices. LinkedIn, YELP, Twitter, Google and Facebook can all be considered for purchase based on current stock prices. Predicting future success of the stocks based on a variety of criteria can help you take advantage of a future stock price increase. LinkedIn, YELP, Twitter, Google and Facebook all have reasons to either purchase or watch in the coming days.
LinkedIn:
LinkedIn held their First Quarter Earnings Conference Call on April 30th, 2015 and their figures came in line with most Wall Street predictions. LinkedIn, however, provided a weaker outlook for Q2 than previously predicted. LinkedIn noted the recent purchase of Lynda.com as the primary reason for tempering expectations. Since reporting Q1 earnings the stock has dropped over 23% reaching lows not seen since October 2014.
PROS:
The price is the lowest it has been in 7 months. The chances of the stock price falling much lower are limited. You may be able to obtain a bargain in front of Q2 earnings being reported in late July or early August.
The recent purchase of Lynda.com will give LinkedIn a new revenue stream that didn't exist with previous figures. Educational content is a growing industry and LinkedIn purchasing Lynda.com gives them some market share in a rather big area.
LinkedIn continues to drive hard copy resumes into the ground. Nearly all jobs are now listed online and must be applied through some online platform. In a lot of cases individuals can apply online for jobs right through their LinkedIn account. Very few job listings specifically ask for a resume or CV now. LinkedIn's recommendations have also replaced references as the norm when applying for jobs as well.
Prior to the recent fall LinkedIn was up nearly 10% in 2015. A strong Q2 will put the stock price near where it was earlier in the year.
CONS:
Investors may continue to sell off stock due to tempered expectations for Q2.
Investors may continue to sell off stock due to believing substantial revenue streams from Lynda.com are too far off.
LinkedIn is currently considered a Hold by most analysts.
My Recommendation:
LinkedIn has been a company that continues to grow its revenue year-to-year and its increase in stock price has shown this in recent times. Strong consideration needs to be given to buy this stock at its current low as lowered expectations often lead to exceeding expectations. If LinkedIn is able to exceed its Q2 forecast the stock will return [at worst] to its earlier $240 to $250 range. A profit of nearly $50 per share seems like a good risk to take.
YELP:
YELP reported their First Quarter Earnings in late April as well and missed a number of key metrics. YELP is a company that I admittedly don't understand the business model of and don't see it as a viable company. YELP has decreased in price by nearly 12% in 2015. YELP saw prices decrease by nearly 29% from the start of the year through the end of April and despite failing to meet expectations has only dropped by 4% in recent weeks.
PROS:
There is strong talk of YELP being sold. YELP under someone else's direction, say a Google, as an example, could be modified into a long term revenue making company.
CONS:
The business model is difficult to understand.
YELP has an extremely high Beta coefficient of 2.55 which makes the stock extremely volatile.
My Recommendation:
Monitor YELP's news regarding a purchase from another firm. The firm that purchases YELP would strongly determine how to trade the stock. If a strong company, like the aforementioned Google were to purchase YELP it might be worth a look, but not currently.
Twitter:
Twitter was another one of the social media companies to report Q1 earnings recently and it was a struggle. Twitter continues to miss on execution and fails to articulate to the masses where they're going. Most of the blame falls on CEO Dick Costolo's doorstep. Since April 30th the stock price has plummeted by over 27% after seeing an increase of nearly 7% in the first four months of 2015.
PROS:
Twitter is one of the cheaper social media stocks, so there is an assumption that the stock has room for growth.
Twitter is now the way most people break news and communicate.
Twitter has room to improve on its execution which can produce greater revenue in the future.
CONS:
Dick Costolo has struggled to execute a long term plan that may doom the company in the short term.
Twitter doesn't seem interested in buyout considerations.
Twitter is in the technology sector where other stocks are flourishing. Twitter is running the risk of being lost in the shuffle. Twitter is still being talked about because it is something most of us use, but the stock soon runs the risk of being irrelevant.
My Recommendation:
Despite holding shares of Twitter stock I wouldn't recommend purchasing shares at this time. Monitor the stock and reconsider a position after they report Q2 earnings.
Google:
When most people think of thriving innovative, creative companies they often reference Google. There is a reason for this. Google used to be widely known for its search engine and not much else, but now it has entered into a wide variety of innovations. Google owns YouTube, which is the preeminent brand in online video watching. Google also creates innovations such as Google Glass and purchases successful brands. Google is in a wide range of markets allowing it to succeed through various revenue streams. In 2015 Google is up over 2%.
PROS:
Google has a proven track record of entering into new markets to increase revenues. Google may still be considered the top search engine, but they are trying to compete for market share in a wide range of areas such as video and music.
Google is an innovator that will not fail. Any time it seems Google is going through the motions something is going on behind the scenes that upon release either works or fails, but Google seems to be constantly working on a number of new revenue streams that continue to make its stock something to look at.
Google is universally considered a buy amongst financial analysts.
CONS:
Google has a current stock price that may prevent the casual investor from purchase.
Google is always using substantial capital for research and development which could limit revenue growth from quarter to quarter.
My Recommendation:
If you're in a position where you can afford to buy a substantial amount of shares it seems well worth the risk for an innovation giant. If you are unable to afford Google shares consider purchasing an ETF that features a large stake in the Google stock. This option will allow you to earn as Google continues to grow.
Facebook:
Facebook overall has appeared to somewhat flatline in 2015. The stock price on January 1st is nearly identical to the stock price from May 11th. The stock did climb towards the mid $80 range from late March to April 22nd. Since April 22nd the stock price has dipped nearly 4%. Facebook like Google seems to make a large number of wise purchases, such as Instagram and WhatsApp. Facebook also seems to continue to explore a multitude of new revenue streams.
PROS:
Innovation drives Facebook, like Google. Facebook is always thinking ahead for the next idea to create revenue growth and stronger, long term viability.
Everyone is on Facebook. Recently after a funeral for my aunt, my mother [60] and my cousin [80] were discussing various flaws of Facebook Ads, Facebook Chat and other aspects of Facebook. The fact that an older generation that isn't really involved with other online products is heavily involved in Facebook showcases the company's ability to secure all genres.
Facebook recently partnered with IBM for improved ads. IBM has been a strong name in the industry for a long time and the relationship will likely be beneficial for both brands.
CONS:
Facebook may have alienated the original demographic the website was created for. Users that initially joined Facebook using their college e-mail address, as was previously required, now seem to the minority within the demographic representation once Facebook was opened up to all users. Young adults struggle with seeing friend requests from their parents or their parents' friends.
My Recommendation:
Investing in Facebook requires a keen eye. Watch the stock closely over the coming days. If the stock is able to stay above $80 for a few consecutive days then it is time to purchase the stock. If the stock continues to sputter over the next few weeks it may be a time to hold off on purchasing the stock.
Remember when purchasing social media stocks that social media is still a relatively new market and overall there is still room for many of these companies to have long term success.
Analyst's Disclosure: The author is long TWTR.
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