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Social Media Signals Ahead of Second Quarter Earnings

July 15, 2016
Social media stock market earnings and financial performance.

There might be a little something for every trader in the social media sector ahead of Q2 earnings. Let me explain by focusing on three of the biggest companies in this space: Facebook (FB), Twitter (TWTR), and LinkedIn (LNKD).

With a market capitalization north of $300 billion, FB is the biggest company in the social media sector and the 8th largest company in the S&P 500 as of early July. But FB is far more than a social media company. It’s one of two behemoths in digital advertising. The other is Alphabet (GOOGL).

FB has been performing relatively well so far this year whether you look at its stock holding up near the all-time high of $121, the bullish response to the last two earnings reports, or the continued adoption of the platform by media and advertisers.

FB is scheduled to report Q2 earnings on July 27. According to Thomson Reuters, many analysts are forecasting earnings of $0.81 per share, which would represent growth of 62% compared to last year. In perspective, the U.S. economy is limping along at a low single digit growth rate.

It’s important for FB to continue delivering high growth in earnings and sales to justify its lofty valuation, say some Wall Street analysts. With a price-to-earnings ratio over 70, FB’s valuation is quite high compared to some competitors. This lofty valuation is why some investors will scrutinize several key metrics the company will provide along with its financial performance. These metrics include monthly active users, daily active users, and users on other platforms like WhatsApp, Messenger, and Instagram. Back in June, FB said Instagram had surpassed 500 million monthly active users and 300 million daily active users.

Can Live-Streaming Help Twitter Fly?

While FB has continued to build its dominance this year, it’s been a different story for TWTR. Through early July, the stock was down by about 18% for the year. But it rebounded off its all-time low at $13.90 after the company announced a series of deals with media partners to live-stream news and events.

TWTR started experimented with streaming live video at this year’s Wimbledon tennis tournament and struck an agreement with the NFL. Then, it joined with broadcaster CBS Corp. (CBS) to live-stream the network’s coverage of the upcoming political conventions. Last week, TWTR made a deal with Bloomberg to stream some of the business channel’s programs.

The company is scheduled to report earnings July 26. Analysts at Thompson Reuters are forecasting earnings per share of $0.10 on revenue of $607 million.

Like FB, some investors will be anxiously awaiting an update on TWTR’s active users. One of TWTR’s challenges has been motivating users to engage with the platform and there’s some hope this may be the case with the recent deals to live-stream engaging content.

Was Mr. Softee the Missing Link?

Microsoft (MSFT), affectionately known as Mr. Softee in some trading circles, surprised everybody in early June with a $26 billion bid to acquire LNKD. Up until MSFT’s acquisition, LNKD was down by about 40% for the year. Much of this drop came after a dismal earnings report in early February.

But since MSFT’s announcement, LNKD has been hovering in a tight trading range around the deal’s bid price of $191.

Even though MSFT is going through the acquisition of LNKD now, investors might still glean some important guidance from the upcoming LNKD earnings report. Analysts at Thompson Reuters are forecasting earnings per share of $0.55 on revenues of $712 million.

Social Media Signals Turn Bullish

Beyond FB, TWTR, and LNKD, the social media sector has generally been performing relatively well this year. The chart in figure 1 reflects as much. This is an index that tracks social media stocks and through last week, was higher by 14% so far this year, handily outperforming the broader markets. However, the risk remains that valuations may be stretched in the sector, which is why these companies must continue delivering solid double-digit earnings growth. We’ll find out if the social media sector can deliver in the coming weeks.


This chart is of the Global X Social Media Index which along with FB, TWTR, and LNKD, includes other social media stocks such as Yahoo (YHOO), GOOGL, Pandora (P), among many others. Image source: the TD Ameritrade thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

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