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Three Sell-Rated Social Media Plays

Stocks in this article: ZNGA LNKD RENN

NEW YORK (TheStreet) -- It's easy to get caught up in the hype of social media stocks, but not all of them are the best bets. TheStreet weighs in on whether LinkedIn (LNKD), Renren (RENN) and Zynga (ZNGA) are worthy plays to invest in.

TheStreet Ratings team rates LinkedIn Corp as a Sell with a ratings score of D+. The team has this to say about their recommendation:

"We rate LinkedIn Corp (LNKD) a SELL. This is driven by several weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its unimpressive growth in net income and disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Internet Software & Services industry. The net income has significantly decreased by 246.1% when compared to the same quarter one year ago, falling from $2.3 million to -$3.36 million.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Internet Software & Services industry and the overall market, LinkedIn Corp's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for LinkedIn Corp is currently very high, coming in at 86.41%. Regardless of LinkedIn Corp's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, LinkedIn Corp's net profit margin of -0.85% significantly underperformed when compared to the industry average.
  • Compared to its closing price of one year ago, LinkedIn Corp's share price has jumped by 105.73%, exceeding the performance of the broader market during that same time frame. Setting our sights on the months ahead, however, we feel that the stock's sharp appreciation over the last year has driven it to a price level which is now relatively expensive compared to the rest of its industry. The implication is that its reduced upside potential is not good enough to warrant further investment at this time.
  • LinkedIn Corp has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, LinkedIn Corp increased its bottom line by earning 19 cents a share vs. 11 cents a share in the prior year. This year, the market expects an improvement in earnings ($1.61 vs. 19 cents).

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