by Evan Aylsworth, Desiree Torrecampo, Sarah
Meechan, Fiona Ke
The stock market is increasingly being turned
to as a means of primary investment because of the low interest rates caused by
the economy. Although the stock market can provide a strong return on
investment, many stocks can be interestingly “deceptive”. Meaning, a strong
current and past quarterly profit period may not lead to a strong or high stock
price. Contradictorily, a poor earnings report could still mean a high stock
price. These examples can be displayed in three social networking stocks:
Facebook, Twitter, and LinkedIn.
Facebook is the most widely used social
network in the world with over 1 billion users. It has multiple sources of
revenue but most comes from displaying advertisements.
This past quarter, Facebook’s overall revenue
increased by 60% compared to last year. With this of earnings report, one would
expect the stock price to drastically increase especially considering that
Facebook beat analysts’ estimates for the quarter as well. Yet despite these
positive signs, Facebook’s stock actually decreased after this earnings report
because of news saying that less teens are using Facebook[1].
A large part of Facebook’s user base is teens
and young adults. With these numbers declining signals investors to be cautious
about buying Facebook’s stock.
Present and past successes have little weight,
if any at all, on the decisions made by investors. Investing is based on where
the company is heading in the future, not where it is or where it was.
This is why Facebook’s stock is increasingly
becoming more bearish and declining since the information on declining teen
usage was released[2].
Twitter is a widely used and growing social
network and micro-blogging site where users post text message-like blurbs about
almost anything. Like many other social networks, Twitter makes its profit
through advertisements[3]. In a world that is
immersed in its mobile devices, Twitter proves to be a promising investment.
What sets Twitter apart from other social
networks is its highly successful mobile platform. With the development of
smartphones and tablets, Twitter users are even more capable of tweeting on the
go. 75% of Twitter users access its network through their mobile devices[4]. In 2013, Twitter made 65%
of its revenue from mobile devices alone. Investor confidence in Twitter was
clearly displayed when Twitter opened at $45.10 a stock and reaching a high of
$50.09.
However this high stock price is backed on
promise alone. Twitter is actually constantly losing money, and has not turned
a significant profit[5]. Regardless,
investors still believe Twitter will be successful in the future.
LinkedIn is proving itself to be large
competition in leading social networking sites as it closed its first day in
2011 on the NYSE at an unbelievable 109% above its opening price of $45. LinkedIn
is based largely on professional networking, created so that potential
employees could exchange resumes and information with companies.
Its potential for success is shown through its
profits, and after its first day on the stock exchange, showed an estimated
worth of $9 billion[6].
Investors though, show concern that these high numbers may be suggesting that
LinkedIn is enjoying a “tech bubble”, where like during the time of the “dot
com boom “, companies related to the Internet sector experienced such rapid
rises in profits and investor pricing. Now, two years later after its first
opening day, investors
are still hopeful for the company despite what stocks are proving.
are still hopeful for the company despite what stocks are proving.
Recently,” LinkedIn’s results... showed a net
loss of $3.4 million” but “...shares rose 1.7% in regular trading”[7]. This just goes to show
that with large, popular companies such as LinkedIn, stock prices and worth
don’t necessarily have to correlate steadily with company worth-a risky fact
for investors in such companies.
LinkedIn’s
IPO is $45 per share, higher than both that of Twitter and Facebook. The
stock of LinkedIn has experienced an incredible run this year. Last quarter,
LinkedIn’s revenue surged 59%, while its profits reached $44.5 million from
$18.1 million last year. Facebook, looking forward to get more profits from
ads, plans to sell more than $5 billion in mobile ads next year and has a
current valuation of $120 billion. Facebook expects the company to report sales
of $10.4 billion next year, up 36% from an average estimate of $7.6 billion for
2013. Twitter twice raised the price of its 70 million-share offering, to $26,
giving it a market valuation of $18.3 billion, making it one of the largest
tech IPOs in 10 years. According to Wall Street's projection, Twitter’s revenue
will rise 53% next year, faster than LinkedIn's expected growth of 42% and
Facebook's, at 36% [8].
[1] Nakaso, Dan, and Brandon
Bailey. "Facebook third- quarter revenue surges 60 percent." San Jose Mercury News 30 Oct. 2013. Web. <http://www.mercurynews.com/business/ci_24419933/facebook-third-quarter-revenue-surges-60-percent>.
[2] Market Watch the Wall
Street Journal. N.p., 20 Nov. 2013. Web.
<http://www.marketwatch.com/investing/stock/fb>.
[3] Gadkari, Pia. "How
does Twitter make money?" BBC 6 Nov. 2013. Web.
<http://www.bbc.co.uk/news/business-24397472>.
[4] Barr, Alistair.
"Twitter soars 73% in stock market debut." USA Today 7 Nov. 2013. Web. 21 Nov. 2013. < http://www.usatoday.com/story/tech/2013/11/07/twitter-stock-market-debut/3459711/>.
[5] Goel, Vindu, and Michael
J. De La Merced. "Twitter reports sharp rise in revenue." 15 Oct.
2013. Web. 21 Nov. 2013.
<http://dealbook.nytimes.com/2013/10/15/twitter-picks-n-y-s-e-for-its-stock-listing/>.
[6] Baldwin, Clare, and Alina
Selyukh. "LinkedIn share price more than doubles in NYSE debut." 19
May 2011. Web.
<http://www.reuters.com/article/2011/05/19/us-linkedin-ipo-risks-idUSTRE74H0TL20110519>.
[7] Anders, George. "LinkedIn's
Growth Stays Strong, But Stock Zigzags On Outlook." Forbes 29 Oct. 2013. Web.
<http://www.forbes.com/sites/georgeanders/2013/10/29/linkedin-stock-keeps-climbing-on-strong-financial-growth/>.
[8] Shinal, John.
"Twitter valuation pricey compared to Facebook, LinkedIn." USA Today 6 Nov. 2013. Web. 21 Nov. 2013.
<Twitter valuation pricey compared to Facebook, LinkedIn>.
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