Social Media Stock Tracker: Facebook’s Graph Search Underwhelms, Drags Sector Down

WEEKLY STOCK PERFORMANCE
The social media sector took a hit this week with an average weekly loss of 3% as FB’s announcement of a new graph search failed to excite investors, sending the stock down 7% (though it is still up 11% in the three weeks of trading of 2013). Despite the negative week, the average return for the social media sector in 2013 is a gain of 5%. EBAY announced solid Q4 results (see below) and next week we will see notable earnings from GOOG, NFLX, and most importantly, AAPL, which has cast a cloud over the entire Internet and media sector during the past six weeks.
Speculation continued over another liquidity event for Alibaba, driving YHOO to a nice gain of 4%, but it was a bad week for YELP and Pandora investors, with losses of 8% and 4%, respectively. YELP was driven down by the thought that FB’s Graph Search is highly competitive (we do not agree in the near-term) and Pandora on the news that Sony/ATV negotiated an increase in royalties and that Amazon’s new mobile web store for MP3s increases the likelihood of AAPL launching a competitive streaming music service.
CHANGE
SINCE JAN 11
CHANGE
SINCE JAN 11
YHOO
MM
SINA
OPEN
LNKD
WEBM
BIDU
ANGI
3.8%
3.6%
1.2%
1.2%
0.9%

(0.9%)
(2.8%)
(3.0%)
JIVE
P
GOOG
ZNGA
FB
GRPN
YELP
RENN
(3.7%)
(4.2%)
(4.8%)
(5.4%)
(6.5%)
(7.5%)
(8.2%)
(9.7%)
COMMENTARY
Facebook
  • 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.
Earnings Season
  • 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.
KEY DEVELOPMENTS IN SOCIAL & INTERNET
Facebook
Product
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)

Product
AT&T finally announced that it will enable FaceTime over cellular at no extra charge for customers with any tiered data plan

Product
After initial testing in Canada, FB is starting to rollout a Messenger app feature that allows free VOIP calls using WiFi or cellular data

Data
SocialBakers, a social media analytics firm, estimated that FB’s U.S. and U.K. active users fell by 1.4m and 600k in December

Data
Instagram announced that it now had 90mn monthly active users (it has never released monthly active user data in the past), and claimed that this was up 10% on a month-over-month basis

Amazon
Product
AMZN is launching an HTML5 mobile web store for MP3s specifically for iOS devices. It will allow direct MP3 purchases (circumventing AAPL’s 30% retailer fee) that will be synced with an Amazon Cloud Player account for easier access

Product
LOVEFiLM, Amazon’s European video streaming company, partnered with NBC Universal to license hundreds of episodes of U.S. television series including The Office, 30 Rock, and Heroes

Product
The company launched its Instant Video service on the Nintendo Wii

Branding Brand
Data
A new study from Branding Brand covering 84 mobile websites indicated that over the 2012 holiday season, mobile commerce sales increased by 171% (year-over-year), while visits to mobile commerce sites increased 109% and page views increased by 116%

eBay
Financial
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)

Product
The company’s PayPal division struck two partnerships with RadioShack and Dollar General that allows customers to user PayPal to pay for store purchases

Deal
PayPal agreed to a partnership with NCR, a strong point-of-sale hardware company, whereby PayPal will be offered as a payment option at restaurants integrated with NCR’s Mobile Pay app (and with PayPal’s own apps in the future)

Forrester
Data
In a new study, Forrester projects that US mobile payments will reach $90b in 2017, a 48% compound annual growth rate from the $12.8b spent in 2012

Gartner
Data
A study by Garner projected that worldwide mobile advertising revenue will increase 19% in 2013, reaching $11.4b (up from $9.6b in 2012) and $24.5b in 2016. North American revenues are expected to grow from $3.2b in 2012 to $8.7b in 2016

Google
Deal
Media rumors continue to circulate that YouTube will acquire a minority stake in Vevo, a music video site

Data
A new study from comScore showed that in December 2012 Google sites (YouTube mainly) dominated unique video viewers with 153 million (total audience was 182 million) and 388 minutes per viewer (dwarfing the nearest competitors by over 5x)

Groupon
Deal
GRPN acquired Glassmap, a real-time location tracker, for an undisclosed amount. The company will likely integrate the acquisition into Groupon Now! to offer users a stronger mobile product

Microsoft
Product
In addition its partnership with FB’s Graph Search, MSFT announced that 5x more of content from FB users’ friends would be searchable in the sidebar

Myspace
Product
The company finally fully launched its new completely redesigned site (it had previous been open only to beta users)

Netflix
Deal
NFLX put a new licensing agreement in place with Warner Bros. for new content from the Cartoon Network, Adult Swim, and TNT’s series Dallas

Glitch
Time Warner Cable claimed that NFLX is withholding content while seeking preferential treatment from ISPs. NFLX responded by stating that Time Warner should join its Open Connect initiative to reduce costs, minimize congestion and improve data delivery

OpenTable
People
Joel Brown, SVP of Operations, resigned from the company

Pandora
Deal
The NY Post reported that Sony/ATV (a JV between Sony and the Michael Jackson estate) negotiated a 25% increase in royalties from Pandora after pulling out of Ascap and BMI to negotiate directly with music services

Yahoo
People
Justin Somaini, chief of information security, and Shashi Seth, SVP of Yahoo Connections, resigned from the company

Yelp
Product
Yelp will add restaurant hygiene inspection scores to reviews on its business pages by rolling out in San Francisco and New York initially

Disclaimer
The user acknowledges that he/she is not relying on any content or information contained in the foregoing report for any financial, tax, legal, accounting, or other business matters, and will rely on the advice of its own professionals and advisors for such matters. The user acknowledges that the above reports are for informative and/or entertainment purposes only and the mention or reference of any company does not imply an investment recommendation. The user acknowledges that under no circumstances is any content of the reports to be construed as an offer, solicitation, or recommendation to buy, sell, or solicit the purchase or sale of any securities of the companies mentioned. The user acknowledges that the information contained in the reports is obtained from sources believed to be reliable, but its accuracy and completeness, and that of the opinions based thereon, are not guaranteed. WebMediaBrands and the author will not be liable for any economic loss that may be sustained based upon the reliance of any material published in the reports.

Related Stories
Mediabistro Course

Social Media Metrics

Social Media MetricsStarting September 4, work with a social media manager to monitor, measure and optimize your social media efforts! Danielle Brigida will teach your how to sift through web analytics, Facebook Insights, and Twitter mentions to develop a comprehensive reporting and tracking system for your brand. Register now!