When social media companies first went public, they were popular and seemed like a good bet to many investors. Indeed, some pundits called it a social media gold rush. Investors expected the companies to disrupt advertising and media to the tune of billions of dollars.
But in the last year, almost every single social media stock has fallen. Twitter stock rose 7% when co-founder Jack Dorsey was named CEO earlier this week, according to a USA Today article by Matt Krantz. Twitter went public on Nov. 7, 2013 and shares closed at $ 44.90 apiece. But the share price has fallen 39% since then.
Yelp’s shares have fallen “a crushing 70% over the past two years,” writes Kratz. “Analysts are calling for Yelp’s adjusted profit to fall 35% this fiscal year to 43 cents a share.”
Linked in is down 16% in the last year. Kratz notes that social media stocks are fairing worse than the market as a whole. Indeed, Linkedin has fallen “four times as much as the 4% decline in the broader Standard & Poor’s 500.”
The one social media company that has grown in value on Wall Street is Facebook. “Shares of the giant are up an impressive 20% this year, which make it a standout not just among social media but the broad market,” writes Kratz. Facebook shares were traded for $ 94.01 on Monday and they have almost doubled since their first public offering. “Adjusted profit is expected to jump 17% this year at Facebook,” writes Kratz.
Why are social media stock prices falling? “The performances illustrate the way investors are questioning whether social media companies can keep their growth rates vigorous enough to justify their valuations,” writes Vindu Goel and Mike Isaac in the New York Times. “The stocks of all three companies [LinkedIn, Twitter and Yelp] 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.”
And why is Facebook fairing so well? “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,” writes Goel and Isaac.
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