Social Media Stocks: the Buys, Holds and Sells

NEW YORK (TheStreet) -- Social media stocks were mixed during Wednesday trading, after investment firm Cantor Fitzgerald removed its "buy" rating from micro-blogging site Twitter (TWTR), citing a preference for Facebook (FB). The former plunged 1.7% to $41.05, while the latter edged 0.15% higher to $46.43.

How does TheStreet rate the rest in the social space? The team shares whether Facebook, Zynga (ZNGA), LinkedIn (LNKD), Yelp (YELP) and Giant Interactive  (GA) are a buy, sell or hold.

Facebook

TheStreet Ratings team rates Facebook Inc as a Hold with a ratings score of C-. The team has this to say about their recommendation:

"We rate Facebook Inc (FB) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and impressive record of earnings per share growth. However, as a counter to these strengths, we find that the company's return on equity has been disappointing."

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

  • FB's very impressive revenue growth greatly exceeded the industry average of 9.2%. Since the same quarter one year prior, revenues leaped by 59.7%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • FB's debt-to-equity ratio is very low at 0.04 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with this, the company maintains a quick ratio of 10.37, which clearly demonstrates the ability to cover short-term cash needs.
  • Powered by its strong earnings growth of 950% and other important driving factors, this stock has surged by 119.09% over the past year, outperforming the rise in the S&P 500 Index during the same period. 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.
  • When compared to other companies in the Internet Software & Services industry and the overall market, Facebook Inc's return on equity is below that of both the industry average and the S&P 500.

Zynga Inc

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

"We rate Zynga Inc (ZNGA) a SELL. This is driven by a number of negative factors, 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. Among the areas we feel are negative, one of the most important has been weak operating cash flow."

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

  • Net operating cash flow has significantly decreased to -$4.86 million or 116.11% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Software industry and the overall market, Zynga Inc's return on equity significantly trails that of both the industry average and the S&P 500.
  • The revenue fell significantly faster than the industry average of 6.7%. Since the same quarter one year prior, revenues fell by 36%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • The gross profit margin for Zynga Inc is currently very high, coming in at 87.65%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -0.03% is in-line with the industry average.
  • ZNGA has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 3.77, which clearly demonstrates the ability to cover short-term cash needs.

LinkedIn Corp

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 a few notable 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 $2.30 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 LNKD's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, LNKD's net profit margin of -0.85% significantly underperformed when compared to the industry average.
  • Compared to its closing price of one year ago, LNKD's share price has jumped by 124.19%, 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).

Yelp Inc

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

"We rate Yelp Inc (YELP) a SELL. This is driven by some concerns, 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 feeble growth in its earnings per share."

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 decreased by 15.5% when compared to the same quarter one year ago, dropping from -$2.01 million to -$2.32 million.
  • YELP INC's earnings per share declined by 33.3% in the most recent quarter compared to the same quarter a year ago. The company has reported a trend of declining earnings per share over the past year. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, Yelp Inc reported poor results of -30 cents a share vs. -15 cents a share in the prior year. This year, the market expects an improvement in earnings (-14 cents vs. -30 cents).
  • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Internet Software & Services industry and the overall market, Yelp Inc's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for Yelp Inc is currently very high, coming in at 93.01%. Regardless of YELP's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, YELP's net profit margin of -3.79% significantly underperformed when compared to the industry average.
  • Net operating cash flow has significantly increased by 882.30% to $6.99 million when compared to the same quarter last year. In addition, Yelp Inc has also vastly surpassed the industry average cash flow growth rate of 23.77%.

Giant Interactive Group

TheStreet Ratings team rates Giant Interactive Group -ADR as a Buy with a ratings score of B. The team has this to say about their recommendation:

"We rate Giant Interactive Group -ADR (GA) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, solid stock price performance, growth in earnings per share and attractive valuation levels. Although the company may harbor some minor weaknesses, we feel they are unlikely to have a significant impact on results."

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

  • GA's revenue growth has slightly outpaced the industry average of 6.7%. Since the same quarter one year prior, revenues rose by 11.5%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • GA's debt-to-equity ratio is very low at 0.19 and is currently below that of the industry average, implying that there has been very successful management of debt levels. To add to this, GA has a quick ratio of 2.18, which demonstrates the ability of the company to cover short-term liquidity needs.
  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 71.86% over the past year, a rise that has exceeded that of the S&P 500 Index. Regarding the stock's future course, although almost any stock can fall in a broad market decline, GA should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • Giant Interactive Group -ADR has improved earnings per share by 15.0% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. During the past fiscal year, Giant Interactive Group -ADR increased its bottom line by earning 65 cents a share vs. 59 cents a share in the prior year. This year, the market expects an improvement in earnings (92 cents vs. 65 cents).

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