The selloff in social-media stocks is gathering steam.
Facebook Inc. (FB:US), Twitter Inc. (TWTR:US), LinkedIn Corp. (LNKD:US) and Yelp Inc. (YELP:US) fell today, marking at least four straight days of declines. All have lost at least 19 percent of their market value this year except Facebook, which is up 2.7 percent. That stands in contrast to last year, when each stock was up by a record.
Investors are questioning whether the Web companies can keep up revenue expansion, as some show signs of slowing gains in the number of users. Social-media companies, which generate revenue via advertisements or subscriptions, have been valued on their promises of fast growth, not the fundamentals of their business, according to Jeff Sica, chief investment officer at Sica Wealth Management LLC in Morristown, New Jersey.
“They’ve traded strictly on their momentum,” Sica said. “Once the momentum is out of the market, these growth stocks are the first ones to get hit.”
LinkedIn led the decline, falling as much as 9.4 percent to $143.26. The shares have declined 32 percent this year. The Nasdaq Internet Index is down 19 percent from a March peak, hovering close to the threshold for a bear market.
Twitter is the most highly valued, at 27 times projected sales this year. Facebook and Yelp each have a price-to-sales ratio of about 15, while LinkedIn is valued at 11 on the same basis. Companies in the Nasdaq Internet Index are valued at 4.8 times 2014 sales, on average.
Tucker Bounds, a spokesman for Facebook, Jim Prosser, a spokesman for Twitter, and Hani Durzy, a spokesman for LinkedIn, declined to comment. A representatives for Yelp didn’t respond to a request for comment.
Investors have withdrawn $2.3 billion from technology-focused exchange-traded funds so far in the current quarter, compared with net inflows of $699.4 million during the first three months of the year, data compiled by Bloomberg shows.
More clues about how to measure the stocks will come this week, when Twitter and LinkedIn post earnings for the first quarter. Twitter is projected to report tomorrow revenue of $242 million and a loss, excluding some items, of 3 cents a share, according to the average of analysts’ estimates compiled by Bloomberg.
LinkedIn, which discloses results on May 1, is projected to report that revenue increased 44 percent to $466.7 million in the first quarter, with earnings excluding some items declining to 34 cents a share from 45 cents a year earlier.
Facebook last week reported revenue that exceeded estimates and is highly valued because of its potential to grow beyond that, said Eric Jackson, president of Ironfire Capital. Investors are concerned that the U.S. Federal Reserve will reduce the pace of its economic stimulus program, he said.
“The markets are preparing to adjust to less support by the Fed in the stock market,” Jackson said. “The place it’s showing up first are in the frothiest parts of the market. Twitter, on a price-to-sales basis, is still amazingly expensive.”
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