Social Media Companies Take a Beating as Results Fall Short:
A trio of social media stocks is getting pummeled this week, a sign that Wall Street may be unwilling to overlook missteps at some of its Internet darlings.
LinkedIn on Thursday plunged as much as 25 percent in after-hours trading after the professional social networking company forecast second-quarter sales that were weaker than Wall Street estimates. (Unlike many other social media companies, LinkedIn doesn’t depend on online advertising for its performance. On Thursday, the company posted a 35 percent jump in sales for the first quarter, exceeding estimates, with growth from services it sells to recruiters and premium subscriptions.)
The drop followed the declines of two other social networking companies:
Twitter shares are down around 25 percent this week after the company reported quarterly sales that fell short of expectations. (Twitter has had particular difficulty in the last few months persuading marketers to buy ads designed to prompt the viewer to take an action, like downloading an app or buying a product. The company’s inconsistent performance has intensified scrutiny of Dick Costolo, the chief executive, who has vowed to speed up product releases to attract new users and advertisers to Twitter.)
The local reviews site Yelp plummeted 23 percent on Thursday, a day after it too posted sales that disappointed Wall Street. (Yelp, which collects user reviews about restaurants and other local services, reported late Wednesday that its ad sales and user growth decelerated during the first quarter. The results suggested that it will be more challenging than expected to make money from the millions of people who check its free listings.)
Not all social media stocks are getting swept up in the maelstrom. Facebook, which posted quarterly results last week, also reported sales that were lighter than Wall Street expected. Yet its stock withstood the headwinds, as Facebook continues to pull away from competitors by adding users to its main social networking site, as well as its Instagram photo-sharing app and WhatsApp messaging service. The company also is making money off newer lines of business, like video advertising.
Why it’s hot:
Robert S. Peck, an Internet analyst with SunTrust Robinson Humphrey, said in an e-mail that the stock declines this week were company-specific, rather than a reflection of broader investor dissatisfaction with social networking or technology.
The performances illustrate the way investors are questioning whether social media companies can keep their growth rates vigorous enough to justify their valuations. The stocks of all three companies had traded at relatively high levels, reflecting Wall Street’s giddy projections. Yet all three shattered that perception in their own way. And while many of these stocks are often volatile, with investors on edge about the weak economy, interest rates and other issues, shareholders increasingly have little tolerance for the slightest misstep