The social media sector was up an average of 2% this week and is heading towards 2013 with an average gain of 13% in 2012, despite incredible volatility along the way. While recent negative sentiment on AAPL shares continued to overshadow the sector, ANGI led the week with a 12% gain, mainly as a result of increased positive equity research coverage.
Instagram’s SNAFU was widely discussed (more below), but FB’s decrease of 2% was more likely on news of the halting of its mobile ad network trial and rumors of an impending launch of AMZN’s potentially powerful ad exchange. YELP’s stock was probably hurt by FB’s addition of location-based local search functionality to its app, though we note that YELP has an unparalleled user review database and is up 27% on the year.
- 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.
FB halted the trial of its mobile ad network in order to better focus on its mobile newsfeed ads at the end of the year
After a strong user backlash over a change in Instagram’s terms of service, which implied that user photos could be sold by FB to advertisers in the future, Instagram relented and reverted to the previous wording
FB is slowly rolling out location-based functionality to its mobile app (Nearby) that allows local search of restaurants and business, although at this time, it appears the search is fairly basic
Facebook launched Poke, an iOS app that lets users send text, photo, video messages that allow timed self-destruct options (in direct competition with Snapchat)
The company began testing a feature that charges users ($1 per message) to send messages to unconnected users in a fashion similar LNKD’s InMail premium option
FB added Chango, a search retargeting firm, into its ad exchange, which allows usage of Chango’s search data (from Google) to better target FB users
Media rumors circulated that autoplay video ads would soon be added to users’ news feeds in another move to introduce a desktop and mobile compatible ad product
Instagram updated its iOS and Android apps to add support for 25 additional languages, in addition to a new filter, the ability to share photos from albums other than users’ main camera roll, and the ability to share directly to Facebook pages
The German Data Protection Commissioner ruled that FB’s real name policy violates German Law and must enable pseudonym accounts, but FB will contest this important ruling
Credible rumors have surfaced that early next year, AMZN will rollout a self-serve real-time ad bidding platform (an ad exchange), which will let advertisers retarget Amazon users based on their searches and purchasing on Amazon
The company announced an exclusive licensing deal with Time Warner to add the first two seasons of the Falling Skies series and all seven seasons of The Closer to the Amazon Prime Instant Video service
Amazon Studios noted that it will produce pilots for six new comedy series to air on Amazon Instant Video including shows from comedy writers from the Onion, Doonesbury, and the Daily Show
New data from Kantar measured over a three-month period indicates that the iPhone and Android has almost reversed market share positions in the U.S. in the last year, with iPhone now having 53% compared to 37% last year and Android’s now at 42% compared to 53% last year
The company noted that it will stop running mobile ads inside its apps due to negative effects on the user experience
eMarketer forecasted that U.S. mobile ad spending will reach $7.2bn next year and nearly $21bn by 2016. The company forecast FB’s mobile ad revenues to grow to $339mn in 2012, $851mn in 2013, and $1.2bn in 2014, and Twitter’s mobile ad revenues to grow to $135mn in 2012, $249mn in 2013, and $383mn in 2014
Foursquare announced that for users that have connected their FB accounts, their FB friends’ activity on Foursquare will directly influence Foursquare recommendations
GOOG launched a new iPhone app called YouTube Capture that syncs to FB, Google+, and Twitter accounts, and allows easier posting to YouTube as soon as videos are recorded
Google Music launched a free new music matching service (like iTunes Match), which scans users’ collections and copies tracks to the cloud for future listening
Arris Group acquired Motorola Home (a division of Motorola that produces set-top boxes for cable providers) from GOOG for $2.3bn
Brian Wallace, formerly a Samsung VP, joined the GOOG as head of marketing at Motorola
The company acquired CommerceInterface, a provider of web-based channel management technology for online commerce, for an undisclosed amount. GRPN notes that it has been using CommerceInterface technology in the past nine months in connection with its Groupon Goods platform
The company noted that it now has $695mn in revenues (65% y/y growth) and more than 3mn Hulu Plus subscribers (which more than doubled over the last year)
The U.S. House of Representatives and Senate passed an amendment to the 1988 Video Protection Privacy Act which will now allow movie rental companies to share and sell their customers’ viewing history, paving the way for the service to integrated onto social networks such as FB’s open graph
Twitter and Nielsen announced an exclusive multi-year agreement to create the “Nielsen Twitter TV Rating”, which will be a syndicated-standard metric around the reach of the TV conversation on Twitter in the U.S.
Twitter announced that it now has 200mn active monthly users compared to 140mn in March 2012
The company shifted CFO Ali Rowghani to the COO position and promoted ZNGA CFO, Mike Gupta, to the CFO role in anticipation of a potential IPO next year
In a cost cutting move, ZNGA confirmed that it is closing its Japanese offices to better focus on its core U.S. market
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