• YELP announced its Q4/12 financial results, beating revenue estimates ($41.2mn vs. $40.3mn), but missing EPS estimates (-$0.08 vs. -$0.04). In our view, the negative initial aftermarket reaction was overblown, as sales and marketing expenses grew more slowly than revenues, and adjusted EBITDA of $1.8mn was above consensus numbers. Importantly, YELP’s revenue guidance was also strong and ahead of analyst estimates for both Q1/13 ($44mn-$44.5mn vs. consensus of $43.8mn) and 2013 ($210mn-$212mn vs. consensus of $207mn).
• While there are some valid concerns about the slowing growth of average monthly visitors and active local business accounts, we believe that there is a baseline floor for YELP’s valuation that helps protect investors based on its leading competitive position in local search and its unique value as a potential acquisition target at less than $1.4bn in market cap. To drive significant share appreciation in 2013, YELP will need to show tangible results from its nascent international business and significantly monetize its impressive mobile presence (mobile app searches are a very large part of YELP’s overall traffic and mobile apps were used on 9.2mn unique devices vs. 8mn in Q3).

• LNKD performed extremely well with Q4/12 revenues of $303.6mn beating estimates of $280mn and EPS of $0.35 crushing the consensus forecast of $0.19. Guidance for Q1/13 was well above consensus ($305mn-$310mn vs. $301.2mn), though 2013 was in line with estimates ($1.41bn-$1.44bn vs. $1.44bn). The stock closed the week at an all-time high and as all three business segments exceeded analyst expectations and growth accelerated in the marketing and premium subscription divisions. The stock is clearly driven by revenue growth rather than valuation metrics (2013 P/E is >70x) and will likely continue to grow as long LNKD can keep top-line growth ahead of expectations (and its peer group).

New Career Opportunities Daily: The best jobs in media.

• FB announced their Q4/12 earnings to a lukewarm reception this week as the stock slightly floundered with a 4% loss. Though the company’s headline numbers beat consensus revenues of $1.52bn with $1.58bn, and beat EPS by $0.02 per share, after adjusting for the one-time extra month of Payments & Fees revenue, the results were closer to being in line with expectations. Overall advertising revenue had a solid result with a 22% q/q gain vs. a 7% gain in Q3/12, but it was not enough to assuage investor concerns of growing expenses/headcount/investment potentially faster than revenue in 2013.
• Heading into the quarter, we noted that the most important driver of near-term investor sentiment would be the mobile component of News Feed ads and how they related to consensus. The result was $306mn, falling short of the consensus of $354mn (which to be fair, as we have noted, is a wild guess by analysts). Even though mobile revenue grew from $152mn (14% of ad sales) in Q3 to $306mn in Q4 (23% of ad sales), the disappointing number tempered some of the recent FB hype. Indeed, most FB bulls were looking for numbers closer to $400mn, which probably would have driven the stock near $40. Still, FB’s shares are up 52% in the two months since the company’s lock-up expiration on November 14.
• Mobile users continued to grow rapidly, with mobile MAUs now accounting for 64% of the FB’s total MAUs, and the company has now had three quarters in a row of accelerating growth of mobile-only MAUs (23%, 24%, and 25% q/q growth for Q2/12, Q3/12, and Q4/12, respectively). This mobile focus exacerbates any slower than expected growth of mobile revenues, as FB needs to demonstrate that the cannibalization of its desktop ad revenue due to the user shift to mobile is not a long-term trend.
• User engagement, although not overly impressive, was steady compared to recent quarters, with North America growing MAUs 2% q/q and 8% y/y (very similar to Q3) and European MAUs growing 3% q/q and 14% y/y (also very similar to Q3). We maintain that engagement will continue to be a very important indicator for the company’s performance throughout 2013 and we see the possibility of metrics coming under pressure in the second half of 2013. ARPU numbers in both of these core markets accelerated in Q4, but importantly, once adjustments are made for an exaggerated Payments & Fees segment (due to a one-time extra month of reporting), growth was actually almost identical to growth in the previous quarter.

• YHOO announced its Q4/12 earnings, reporting revenues in line with expectations and beating consensus non-GAAP EPS of $0.27 by $0.05. With 2013 guidance also in line with consensus numbers, investors are looking for stock drivers such as compelling M&A, further unlocking of the Asian assets, or an updated and competitive mobile strategy. The company reiterated its focus on growing usage and users (international and demographically), but the slow pace thus far and the lack of tangible results is beginning to wear on investors.

New Career Opportunities Daily: The best jobs in media.

• GOOG announced their Q4/12 earnings to a positive reception with standalone gross revenue (excluding the discontinued Motorola home business unit) of $12.91bn (a 21% increase year-over-year which represented acceleration vs. the 17% in the previous quarter) beating consensus numbers of $12.73bn. On a non-GAAP EPS basis, Google reported $10.65, beating consensus of $10.61 (though this included the loss from the discontinued Motorola segment).
• GOOG’s Cost-Per-Click (CPCs) were up 2% q/q, but down 6% year-over-year, which were better than Wall Street’s expectations, which is likely a major factor in the positive market reaction to this earnings report. We maintain that reversing the downward pressure on ad prices during the continued shift to mobile is a key factor for the potential growth of GOOG’s stock in 2013, though Traffic Acquisition Costs (TAC) remain a concern and were slightly higher on a y/y basis. The company noted that its policy changes to improve the user experience with ad products such as restricting the number of ads per page, were critical in improving CPCs, and GOOG expects to see these positive impacts continue in the next several quarters.
• NFLX reported strong results in its Q4/12 financials, with revenues of $945mn (vs. consensus of $935mn) and adjusted EPS of $0.29, well above consensus of $0.09. Lower content costs and increases in domestic and international subscribers drove profitability and helped reposition the stock in the investor community resulting in an astounding 71% one week gain. Guidance for domestic streaming subscribers in Q1/13 was a midpoint of 1.75mn, well ahead of consensus at 1.2mn.

• With the focus on FB’s earnings next week, investors should take a lesson from AAPL and note that a company’s results matter less than how those results compare to expectations. With FB, we continue to warn investors that there is no evidence that suggests sell-side “channel check” inputs have been highly correlated to FB’s financial numbers in the past. These inputs cannot be relied upon as third party ad studies are too small and sometimes anecdotal in nature. However, we do admit that GOOG’s Q4 improvement in CPCs seems to indicate that mobile ad pricing may reach a positive tipping point in the future, and the main issue for FB in the last year has been the cannibalization of its desktop ad revenue due to the user shift to mobile.
• Heading into the quarter, consensus revenues for Q4/12 remain at $1.52bn, which is a forecast of a re-acceleration on a year-over-year basis (35% in Q4/12 vs. 32% in Q3/12), and indicates a 21% quarter-over-quarter growth vs. a 7% gain in Q3/12. Though it is difficult to forecast the payments and fees performance, if that segment were to be flat in Q4, FB’s Q4/12 advertising revenue will need to grow 24% q/q (which is something that FB has not achieved in eight quarters) to meet expectations. In order to give comfort to these numbers, FB bulls should look for Gifts to bolster the payments and fees segment, and a ramp of News Feed ads, (Sponsored Stories, Promoted Posts, and App Install ads).
• In particular, the number that we feel will have the greatest impact on investor sentiment will be the mobile component of News Feed ads, currently modeled at $354mn by consensus. If mobile News Feed ads significantly beats that estimate (perhaps above $400mn), driving the total Sponsored Stories revenue near $500mn, this may boost the stock to and slightly above its IPO pricing levels of $38 per share, although conservative investors should keep in mind that FB’s shares are up 59% in the two months since the company’s lock-up expiration on November 14.
• Lastly, we believe that user engagement will be a very important indicator for the company’s performance throughout 2013 (not just in the near term), which has been essentially flat in FB’s primary market, North America. If engagement weakens, this would be a serious problem for the company down the road, and we believe that engagement metrics will be under increased pressure during the second half of 2013 in particular.

New Career Opportunities Daily: The best jobs in media.

• FB announced a new product, Graph Search, which will feature the ability to dynamically search content available through Facebook (people, photos, places and interests) for answers (rather than links as in typical search engines). Graph Search is not a mobile product at this time and full rollout will take years, according to Zuckerberg. The key differentiator is that Graph Search intends to answer queries based on how content has been organized on Facebook (liked, categorized, and grouped). MSFT’s Bing search engine will be a partner to FB by defaulting searches to Bing answers when Graph Search queries cannot be adequately addressed.
• Despite the prior hype, last week we noted that the ‘mystery’ press event would be meaningless and with the stock down 7% this week, we reiterate that FB’s Graph Search should have zero positive impact on the stock in the near-term. It is difficult to project the long-term potential of Graph Search, but the U.S. paid desktop search market is currently $16.4b (MagnaGlobal) so if FB were able to find a way to monetize it in the future, even a slice of that market could be relevant.
• Presently, we view Graph Search as a defense against decreasing user engagement, which we have previously highlighted as a potential problem for the company. Even if Graph Search is still nascent at the moment, search functionality increases the usefulness of the social network. In the medium-term future, we can be certain that FB will not miss the chance to find a way to increase ad inventory based on search results or boost sponsored search in a significant way.
• In terms of effects on derivative stocks, despite YELP’s large decline in reaction to Graph Search, we continue to believe that the company is well placed and for now still rules local search and discovery. While GOOG is a natural competitor for Graph Search, the company has a 65.2% market share of worldwide search as of December 2012 (comScore) and it is not likely that users will substitute searches on FB for Google searches in a significant way in the near-term. Lastly, even though FB highlighted the potential benefits to hiring/recruiting with Graph Search, at this time it is not a credible competitive product to LNKD’s offerings.

• EBAY announced their Q4/12 earnings, showing solid results, beating consensus estimates on revenue ($3.99b vs. $3.98b) and on non-GAAP EPS ($0.70 vs. $0.69). Total revenues increased 18.1% on a year-over-year basis and 14.8% vs. Q3/12 on the back of strong organic growth across all business lines. PayPal revenue came in at $1.54b, an increase of 24.3% y/y and 23.4% q/q. The company noted that 25% of new users come from mobile and that PayPal mobile payments are now 10% of PayPal’s total payment volume. The company guided 2013 revenues and earnings within expectations, but Q1/13 guidance was slightly below consensus numbers.
• Overall, EBAY’s results were a positive beginning to the Internet season with intriguing mobile numbers, though management noted that parts of Europe are still sluggish. Other than AAPL’s earnings next week, which is an overwhelmingly important event, GOOG will also announce Q4/12 results. Investors should pay close attention to details on mobile effects on overall CPCs in terms of volume and pricing, as any indication of a positive shift sometime in 2013 would be very important.

New Career Opportunities Daily: The best jobs in media.

• FB’s shares are up an astounding 60% in the two months since the company’s lock-up expiration on November 14 and the $38 IPO watermark is in sight ahead just weeks ahead of its Q4 earnings. The IPO price is more psychological than anything, but we can be very confident that FB’s management is cognizant of that target and is attempting to manage expectations appropriately (based on its previous interaction with analysts during its IPO process).
• This means that to breakthrough the $38 price before May 18, 2013 (the anniversary of its IPO date) will require strong Q4/12 numbers (to be released on January 30, 2013) since FB’s Q1 is typically weak due to ad seasonality and other factors. Given the sad state of how the market works presently, this also means that FB’s numbers will be judged against consensus numbers, more than anything else.
• In recent weeks, the trend among research analysts has been positive, with several upgrades and a slight revision of revenue projections upwards. Consensus revenues for Q4/12 are now $1.52bn, which increases the re-acceleration projection on a year-over-year basis (35% in Q4/12 vs. 32% in Q3/12) and now projects a 21% quarter-over-quarter growth vs. a 7% gain in Q3/12. With the new consensus numbers, if we again assume that the payments and fees revenue are flat for Q4, then that means to meet expectations, FB’s Q4/12 advertising revenue would need to grow 24% q/q (which is something that FB has not achieved in eight quarters).
• There have been some anecdotal reports that overall advertising appetite on FB has been strong throughout the last quarter, but there is realistically no evidence that suggests this type of information has been highly correlated to FB’s financial numbers in the past. FB’s core business is still shifting rapidly to mobile and most near-term projections around these numbers are educated guesses at best.
• Sentiment is now overly positive on FB and there are few voices discussing the potential negative issues for the company (decreased engagement and basically flat users numbers users in the primary North American market), which reminds me of the mood during this time last year. My opinion is that engagement numbers will be alarming over the second half of 2013, but not necessarily any worse in Q4/12 than they have been in recent quarters.
• Further, advertising buyers will likely be slow to react to any signs of potential decreased user engagement, giving investors enough time to react if/when user numbers are down. I also believe that the mystery press event next week is meaningless for the stock, at least at this time (ahead of earnings). We will discuss declining user growth in more detail in an upcoming newsletter.

New Career Opportunities Daily: The best jobs in media.

Covering the major events leading up to the market close on Friday night, the newsletter summarizes the week’s activity for stocks in the social media and internet sectors, with a special focus on Facebook, LinkedIn, Google, Zynga, and Groupon. The newsletter will also include punchy news recaps and expert commentary so you’ll be up to speed on the social sector by the time you’ve finished your first cup of coffee.

Here are a few details about our stock expert:

The Social Media Stock Tracker is prepared by Nathan Drona, a former senior analyst in equity research with coverage of the Internet and media sectors and the former director of a global hedge fund focused on technology and life sciences. He was also a senior investment banker focused on M&A for international companies in technology and life sciences, and has been a board director for several public and private companies.

“The launch of the Social Media Stock Tracker we believe is the first such report to be available for free online and is sure to become a must-read for everyone in the social media investing space,” said Alan M. Meckler, chairman and CEO of SocialTimes parent company WebMediaBrands, Inc., in a statement.  “This is just one more example of how WebMediaBrands has become the go-to company for providing total coverage of the rapidly growing social media industry.”

To receive the newsletter by email, click here.

New Career Opportunities Daily: The best jobs in media.

• With Q4/12 earnings around the corner, interest in the sector is heightened. The daily trading volume in 2013 for social media stocks increased by 18% when compared to the daily average in December 2012. ANGI, YELP, OPEN, and JIVE posted the biggest increases with volume gains of 80%, 69%, 52%, and 35%, respectively.
• Compared to the full year of 2012, the daily trading volume for social media stocks in 2013 increased by 15%. P, YELP, GRPN, and ANGI had the biggest increases with gains of 79%, 60%, 35%, and 33%, respectively. All signs point to a wild ride for the sector for the early part of 2013 as the volume pattern will likely follow 2012’s, which saw greater trading and higher volatility in the early part of the year.

• We have been making the case that volatility in the social media sector can lead to opportunities for share appreciation that are perhaps more compelling than that of any other industry. Counting only within the three trading days of 2013 thus far, the average difference from low to high trading prices is 8% for the sector.
• Meaning, if an investor purchased social media securities in the last three trading days at the low price and sold at the high price, they could expect a one-week gain of 8% on average. WEBM (the parent company of SocialTimes) and Pandora showed the largest differentials (and arguably, investment opportunities) during this week with differentials of 17% and 15%, respectively.
• The top five stocks in the sector had greater than 10% differentials this week and the data suggests that if investors can sift through the abnormal noise in social media in terms of news and developments, there are incredibly significant investment opportunities every week within the sector.

New Career Opportunities Daily: The best jobs in media.

• The clear winner of 2012, LinkedIn delivered impressive revenue growth across all of its business lines, which translated into a soaring stock. This year showed that professional social networks can have better investment attributes than entertainment-oriented networks (such as FB and Twitter), which was demonstrated as Internet usage shifted from desktop to mobile hurting FB and GOOG, but which was incrementally positive for LKND.
• However, massive growth expectations have resulted in a stock with a P/E ratio above 85x. In 2013, it is likely that investors will give the company a little time to grow into this earnings multiple as long as LNKD’s competitive position stays strong, but with such a high valuation, the company is more exposed to stock downside if a significant slow-down in growth occurs.

• Although less heralded than other stocks in media coverage, YELP has been a strong performer this year by cementing its position as the leader in local business information, taking advantage of the online shift of the local advertising market. Strong commercial growth in both new and older geographic markets drove the stock upwards, but the company is not cheap by traditional valuation standards.
• We think that continued share appreciation in 2013 will be predicated on the company’s ability to execute in its initial commercial international markets, and by finding a way to monetize its impressive mobile presence (its mobile app searches already account for 45% of YELP’s traffic).

• At times in 2012, the criticism of GRPN as a stock was undeserved, but at the halfway point, a slowdown in its international business (which accounts for the majority of GRPN’s revenues) unveiled tangible issues and portended the continued slide downwards for the rest of the year. On the whole, the domestic business performed positively due to technology improvements, continued customer interest, and stable merchant take rates.
• However, the core challenge to fixing GRPN’s international business in 2013 will hinge on the rollout of unified and strong technology platforms in Europe, as well as improving issues such as deal mix and merchant satisfaction (much lower than U.S. satisfaction). There are other interesting avenues of potential growth such as Groupon Now! and the company’s integration of POS/inventory management (or even an acquisition of the company), but strong negative sentiment has set a high bar for the company for 2013.

• Putting it bluntly, the social gaming company completely fell apart in Q2, missing earnings expectations and giving guidance that was significantly materially lower (full-year revenue flat to up 6% from what was previously 23%-30%). The implications of the earlier sale of shares by executives in ZNGA’s spring secondary offering compounded management’s poor performance/explanations on their Q2 analyst call.
• ZNGA is currently trading at a technology value of roughly $0.53 per share (with ~$1.80 of cash per share), but with countless management defections, eroded trust of its current leadership, and a weakening of the company’s FB partnership, it remains difficult to see the near-term upside in the stock.

New Career Opportunities Daily: The best jobs in media.

• After public backlash over a change of terms of service that spread fears of the potential selling of users photos, Instagram reverted to previous language to assuage threatening defectors. We’ve previously discussed how FB’s focus still remains on solving the mobile problem despite strong growth in mobile sponsored stories in the two quarters.
• A month ahead of Q4/12 earnings, we maintain that in the near-term, the company will continue trade on sentiment and the shares could be volatile. It is useful to note that between its Q2/12 and Q3/12 earnings announcements, the stock dropped between 9% and 35%, yet between Q3/12 earnings and today, FB traded in a range of negative 3% to positive 48%. So we know that there are significant opportunities for gains (and losses) from quarter to quarter for FB holders.
• We also can confidently state that the stock does not trade on long-term fundamentals, unless one believes that the fortunes and strategic positioning the company deserve to shift $20bn to $30bn in market value every few months. Wall Street is completely focused on the short-term, and this sadly means the consensus estimates matter. We believe that revenues (and more specifically, revenue growth) are more important than earnings for the company at this time.
• Presently, consensus revenues for FB’s Q4/12 are $1.51bn, which essentially projects a slight re-acceleration on a year-over-year basis (34% in Q4/12 vs. 32% in Q3/12). Even though this would be nominal, this has been a significant reason for the growth-oriented narrative of the stock this quarter that has been floating around (i.e. “the business is picking up and growth is starting to crank”).
• Consensus also projects 20% quarter-over-quarter growth in comparison with only a 7% gain in Q3/12. How likely is this? Looking at the same two quarters in 2011 for FB shows a 19% q/q gain in Q4/11 and 7% q/q gain in Q3/11. Yes, Wall Street is really not that imaginative when no guidance is given from a company. Although gaming revenue (payments and fees) collapsed for FB in Q3/12 (down 8% q/q), the key piece is advertising which accounts for roughly 86% of its total revenues. Advertising showed unimpressive growth of 10% q/q in Q3/12, but to be fair, this is a typically weak quarter for FB in terms of seasonality.
• FB bulls should note that if one assumes that the payments and fees revenue will be essentially flat for Q4, then that means to meet (not beat) expectations, FB’s Q4/12 advertising revenue would need to show strong growth of 23% q/q and continued re-acceleration on a y/y basis of 42%. We will continue to break down FB in coming editions of this weekly report, analyzing the effects of continued mobile usage, user stagnation, ARPU shifts, as well as changing competitive environments and the potential upside in products such as FBX, search, and gifts.

New Career Opportunities Daily: The best jobs in media.

• It is difficult to justify the 35% gain on FB shares since its significant lock-up expiration on November 14 (there was an additional small lockup this week of 156m shares). The massively increased supply should have put pressure on the stock, but the shares have soared despite insider sales such as Sheryl Sandberg’s recent disposal of almost 5% of her total stake.
• While FB’s initiatives in search, a broad ad network, and the expanded launch of Gifts offer very interesting potential over the next 12 months, they are still nascent and the core of its business remains the same. With the focus still on monetizing mobile while US users are essentially plateauing and Sponsored Stories is potentially reaching a limit (before cannibalizing user engagement), FB has spent the last several weeks cleverly setting itself up to monetize Instagram by essentially stripping users of their right to approve changes in the future (see news below) so it can implement future commercial integration more easily.
• Despite the inclusion of the stock to the NASDAQ 100 this week, there was negative pressure on the shares (down 2.4%) and we think that the stock will continue to trade on sentiment over the next month, ahead of its Q4 earnings, rather than on fundamentals, which means a potentially volatile ride.

• The Google Maps app for iOS was finally released this week, where it skyrocketed to the top app status, with strong positive reviews. With more expected iOS 6 upgrades, but with less overall usage on AAPL’s native map application, speculation has increased that YELP’s mobile efforts will suffer (as YELP is tightly integrated into Apple Maps). Further, with continued rumors of Foursquare’s further integration or acquisition by AAPL, the assumption is that YELP will suffer.
• However, we note that YELP is on track to re-accelerate its revenues in Q4, and it is the clear leader in local review content by a significant margin. Even prior to iOS integration, 40% of YELP searches were through mobile, so any incremental value YELP gains from its AAPL partnership are a positive to an already impressive position (mobile searches increased to 45% at the end of September). YELP has built a company with unique assets that could be attractive to potential acquirers: there are few $1.2b companies that are strong competitors to GOOG.
• Going forward, YELP is well positioned to continue to rapidly capture the online shift of the local advertising market. Its value will not be driven by Google Maps, but instead on its ability to begin to monetize its already impressive mobile platform in a significant way and show that it can commercialize international markets with the same growth rates that it undertook in the US.

	Advertisement

• Pandora announced its Q3 results and although the company beat consensus estimates on revenue ($120m vs. $117m) and earnings (non-GAAP EPS of $0.05 vs. $0.01), the stock suffered on lower Q4 guidance. Pandora shares are down 16% since its earnings announcement and 20% since January 1, 2012.
• Pandora’s low Q4 revenue guidance ($120m-$123m vs. $130m consensus) was significant and the company stated that it is a result of caution on near-term spending from advertisers due to macroeconomic concerns such as the fiscal cliff, as well as the typical seasonal weakness in January (Pandora’s fiscal year ends January 31).
• Though ad revenue showed steady growth at 19% q/q and 61% y/y, Pandora has not demonstrated that its ad revenues can definitively outpace cost growth, which is a core challenge since its content costs grow linearly with usage and music content prices increase by ~8% per year according to its SoundExchange royalty agreement. On Trailing Twelve Months (TTM) basis, content costs were 60% of total revenues.

• RPM is defined as advertising revenue earned per 1000 ad supported listener hours and is an important metric, particularly mobile RPM. Since content costs are the same on mobile and desktop, increasing total RPM is the key to Pandora’s leverage, and more specifically, increasing mobile RPM is the fundamental goal since mobile represented 77% of total listener hours in Q3. However, the continued hyper-transition to mobile has negatively affected Pandora’s ad revenues, since mobile monetization is dramatically lower than desktop ($21.56 vs. $55.18 of mobile ad RPM on a TTM basis).
• On a positive note, Pandora’s quarterly mobile ad RPM grew 13% to $25.59 from $22.74 a year ago. However, mobile RPM growth has been stagnant in general over the past year (it decreased by 6% in Q2 and is only up 8% over the past five quarters) and further, the desktop ad RPM is also decreasing (down 14% in Q3, down 18% in Q2) as increased listener hours have not been offset by increased advertising sales.
• The core issue is that blended ad RPM hasn’t really moved in the last two quarters on a TTM basis ($29.20-$29.21) and small incremental increases on mobile just isn’t enough to drive the stock up when combined with downward pressure on desktop ad RPMs.

• To be bullish on this stock at this time, you have to believe that Pandora will be able to grow its mobile RPMs more rapidly than it has demonstrated in the past. Is this possible? It hasn’t been so far, but in my numerous discussions with Pandora management over the past year, the company stressed that the challenge is to achieve greater direct sell-through rates on mobile (which are about a third of desktop sell-through rates) rather than focusing on increase mobile ad prices.
• Further, a bull should believe that Pandora will be able to maintain its competitive position (market share, listener hours, or active users) in the face of dangerous rivals such as Spotify, AAPL, AMZN, MSFT, and a host of dynamic digital music startups with innovative social features.
• In particular, it could be very damaging if AAPL can finalize licensing agreements with the major music labels and successfully launch a streaming service and we note that there has been a steady decline in the growth of monthly listener hours this year (102% in February vs. 59% in November).
• In the near term, it is unlikely that there will be a decrease in rising content costs for the company, as the proposed Internet Radio Fairness Act currently has only lukewarm support at best and streaming rates are currently miniscule for artists compared to song downloads.

New Career Opportunities Daily: The best jobs in media.

The social media sector performed well this week, with an average gain of 3%, mainly on the strength of FB (through more positive coverage) and Pandora (ahead of its earnings next week). Media speculation on GRPN and changes to ZNGA’s partnership with FB resulted in daily volatility of those stocks, but the news did not provide any fundamental changes that should impact their securities as discussed below.

Zynga/Facebook

• FB announced a series of amendments to their agreement with ZNGA that removed preferential partner terms, meaning that ZNGA will be subject to FB’s standard developer terms of service.
• Although FB notes that it is not planning to develop its own games, the amended agreement allows this possibility in the future. Key changes for ZNGA include its freedom to use other social platforms on Zynga.com for both logins and payments systems, and the removal of requirements to display FB’s ad units on Zynga.com.
• Though ZNGA can now attempt to better leverage its brand across other platforms, much of the Q3 weakness for ZNGA was due to the continued shift of FB’s users to mobile, so the key for a turnaround in ZNGA remains to develop a significant and sustainable mobile gaming portfolio.
• With ~$1.80 of cash per share, ZNGA is trading at a technology value of roughly $0.66 per share. Although the downside to the stock is limited beyond cash, with numerous key executive defections in the past two quarters and with an overall terrible performance in 2012 thus far, it is difficult to have confidence in the company’s ability to execute a turnaround in the next several quarters.

Groupon

• There was a flurry of media speculation this week that CEO Andrew Mason would be fired, but after a board meeting, there were no executive changes made. At a conference, Mason addressed questions regarding these rumors and signaled his confidence in the business and his continued leadership.
• Mason also noted the strength of the company’s growing ecommerce platform, Groupon Goods (even though this business has resulted in lower overall margins for GRPN). Mason also specifically noted that despite the success of Goods, the company did not intent to build out a shipping/fulfillment logistics platform.
• The international segment remains the key problem for GRPN and addressing these issues by optimizing its deal mix, rolling out better technology platforms, and improving overall execution will continue to take time as the overseas business has historically been patched together. A new CEO with experience in effectively running a global enterprise would likely unlock some pressure on the stock.
• Despite GRPN’s recent guide to reacceleration in both billings and revenue growth for Q4, negative sentiment on the stock continues and was exacerbated by news that LivingSocial (its primary daily deals competitor) fired 10% of its workforce in an effort to focus more on mobile after a poor Q3 performance. If GRPN does indeed show improved international and overall reacceleration in Q4, the stock price will likely react positively irrespective of any potential CEO changes.

Key Developments in Social & Internet

New Career Opportunities Daily: The best jobs in media.