Source: Thinkstock
LinkedIn’s shares dropped more than 6% on Friday to $209.59 after the company announced results that beat estimates. The problem was that guidance was below expectations. Analysts reacted differently to the results. SunTrust’s Robinson Humphrey raised its rating to Buy and boosted its price target to $260 from $250. Merrill Lynch maintained its Neutral rating as it sees more acceleration potential in other stocks. Canaccord Genuity lowered its price target to $250 from $270.
After reporting earnings on Wednesday, Twitter shares dropped from $66 to $50 on Thursday, a one-day collapse of 32%; they rebounded 8.6% to $54.33 on Friday.
The big concern for Twitter is slow user growth numbers. As with LinkedIn, analysts’ reactions differed. Four firms downgraded the stock, with UBS dropping its rating from Neutral to Sell; Atlantic Equities lowering its rating from Neutral to Underweight; Sterne Agee dropping its rating from Neutral to Underperform; and Stifel Nicolaus dropping from Buy to Hold. Two firms, Cowen & Co. and Wunderlich, reiterated their Underperform and Sell ratings, respectively. Only RBC Capital Markets maintained a Buy rating on Twitter stock.
LinkedIn made it very clear that the company plans to increase its investments that will hammer 2014 margins. CEO Jeff Weiner said, “Moving forward, we are investing significantly in a focused number of long-term initiatives that will allow us to realize our vision to create economic opportunity for every member of the global workforce.” The payoff for those investments won’t come until 2015 or later, and that’s just too long for some traders to wait.
Twitter added just 9 million new users in the fourth quarter. As an advertising supported enterprise, the company needs to add more eyeballs to support higher advertising rates. Twitter’s price to sales ratio is a whopping 51, more than double the price-to-sales ratio of social media giant Facebook Inc. (NASDAQ: FB). The company is simply too richly valued, and the share price could drop even further in the weeks ahead.
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