Bets against Facebook (FB) are getting too popular. According to WSJ, the number of shares sold short on Facebook is 97 million shares, up 57% from 63 million shares last month. As discussed in detail on Seeking Alpha, August 16 represents an up to 10% increase in shares traded publicly for Facebook. Investors should not expect Facebook to fall dramatically in the short-term, but the bearish case will increase substantially on November 14:
It will be in November when the aggregate dilution will be 67%. Still, when Groupon’s stock expired, more shares were available for short sellers, limiting its initial decline. From its peak, Groupon (GRPN) shares are down 82.9% from its 52-week high. Social networking game-maker Zynga (ZNGA) shares are down 80.8% from its 52-week high.
In the 3 to 6 month period, expect these shares to be weak:
1. Facebook, Inc. (FB, Earnings, Analysts, Financials): Market cap at $45.42B, most recent closing price at $21.20. Facebook reported quarterly earnings that showed impressive revenue growth, but shares already reflect an even more optimistic future. Facebook reported costs growing far faster than revenue growth.
2. Zynga, Inc. (ZNGA, Earnings, Analysts, Financials): Market cap at $2.32B, most recent closing price at $3.06. Insider sales for Zynga were made well-before shares continued to decline further. The company over-paid for “Draw Something.” Just one month after buying the company in May, the company lost 5 users.
3. Groupon, Inc. (GRPN, Earnings, Analysts, Financials): Market cap at $3.44B, most recent closing price at $5.32. Groupon reported quarterly earnings that pushed its share price even lower. During the quarter, revenue rose only 2%, and generated a net income of $0.04, compared to a loss of $0.35 last year.
Here is their stock performance, generated on Kapitall.com (Company Snapshot a Turbo Chart):
Social media companies holding their value are:
4. Yelp, Inc. (YELP, Earnings, Analysts, Financials): Market cap at $1.35B, most recent closing price at $22.11. Yelp reported a 67% revenue increase in the quarter, although the company generated a loss. The results were good-enough to please investors.
5. LinkedIn Corporation (LNKD, Earnings, Analysts, Financials): Market cap at $10.81B, most recent closing price at $102.23. LinkedIn recently reported earnings that showed consistent growth in revenue. LinkedIn is increasing user registrations on mobile devices, and plans to deliver ads on this platform. The company raised its full-year revenue guidance to $915-$925 million. The company previously guided $880 million to $900 million
Conservative investors who want exposure to the social media space but do not want as much risk should look at:
6. Electronic Arts Inc. (EA, Earnings, Analysts, Financials): Develops, markets, publishes, and distributes game software and content for video game consoles, personal computers, mobile phones, tablets and electronic readers, hand held game players, and the Internet. Market cap at $4.17B, most recent closing price at $13.09. EA released “The Sims Social” on Facebook. The game already has 8.7 million “likes” on its page. EA also has a number of high-profile games that will be released in the quarters ahead. Even with lower interest for console games compared to social media games, EA is better-diversified than Zynga.
7. Activision Blizzard, Inc. (ATVI, Earnings, Analysts, Financials): Publishes online, personal computer (PC), console, handheld, and mobile games of interactive entertainment worldwide. Market cap at $12.91B, most recent closing price at $11.62. Activision shares are under some pressure as Vivendi (VIVHY) seeks to unload its ownership in the company. Like EA, the company will benefit as consumers renew an interest for console games.
Written by Chris Lau. Disclosure: Long position on Electronic Arts.
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