US earnings season – social media stocks

US earnings season continues this week with results from the big social media and tech stocks.

Twitter

After half a year in the job, CEO and one of the original founders Jack Dorsey is yet to inspire confidence that Twitter can ever utilise all its potential. User growth has stalled. Clearly Twitter as it stands is not nearly as attractive as Facebook for the masses. The company needs to find its purpose. One new venture is that Twitter will stream live American football with the idea that the game gives users a live unifying theme with which to engage.

Despite beating the street last quarter, Twitter’s star has fallen so far that expectations remain very low for the company with traders still wondering if the company will be able to turn things around or if it could get bought out by a larger and more successful player in social media.

This quarter, Twitter is expected by the street to report adjusted earnings of $0.10  on sales of $607M up about 40-45% over a year ago. With sales of $710M last quarter in line, the shares didn’t respond to EPS of $0.16 coming in well above the $0.12 street estimate. This time around expectations are even lower, raising the potential for a positive surprise.

A daily price chart shows Twitter shares have settled into a range of 15.50-19 after a sharp decline in Q4. There is a confluence of possible resistance at $20 from the March high and a long-term down-trendline.

(Source: CMC Markets, 19/4/16)

LinkedIn

No LinkedIn did not split its shares last quarter, it really fell from near $200 just before its last earnings report to $100 in the days after the report. This total demolition made LinkedIn the poster child for last quarter’s theme of strong Q4 earnings paired with weak guidance that sent many shares tumbling.

LinkedIn continues to monopolise the niche area of online CV social media but the company needs to back away from trying to compete with Twitter and Facebook in producing content but rather work on its core skillset of professional networking and careers.

This quarter, LinkedIn is expected to report adjusted earnings of $0.60 on sales of $827M up 6% and 305 respectively over a year ago but down from the $0.94 and $861M reported for last quarter. Needless to say markets are behaving better and expectations are a lot lower this time around but given the shock response to last quarter’s results, it all may hinge on guidance once again.

With shares halving dropped over 40% after the last release, there is going to be some pain out there for those still holding on. Many of the investors who bought before the last report will be looking to sell after a bounce. Focusing on the daily drop last quarter, a 50% retracement of that day’s loss would fall just below the psychologically significant $150.

(Source: CMC Markets, 19/4/16)

Facebook

Facebook is going from strength to strength with user growth and the monetisation of those users growing exponentially and further growth is not hard to see as video ads on the main platform and Instagram gain traction. A risk-factor is spending on moon shot side projects including Oculus virtual reality which could be the driver of the next phase of growth and keep Facebook relevant but eat into short-term margins.

Last quarter Facebook easily beat earnings per share and revenue estimates with 79c and 5.84bn respectively. It’s worth noting that Facebook has beaten EPS estimates in all 8 of the last 8 quarter.

Facebook is expected to earn an adjusted EPS of 62c on revenue of $52.25bn, marking 48% year-over-year growth in both. Facebook trades on a forward P/E of 35

A weekly price chart shows Facebook shares in a steady uptrend that has stayed within two standard deviations of its 20-week moving average. Earnings could dictate whether shares push into a new record high or fall back to the lower bollinger band.

(source: CMC Markets 19/4/16)

Important dates

Twitter Tue 26 April
Facebook Wed 27 April
LinkedIn Thu 28 April

View a full list of the main US and UK companies reporting w/c 25 April 2016.