Three Sell-Rated Social Media Plays

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).

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

"We rate Renren Inc -ADR (RENN) 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 feeble growth in its earnings per share, deteriorating net income, disappointing return on equity and generally disappointing historical performance in the stock itself."

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

  • Renren Inc -ADR 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. Earnings per share have declined over the last year. We anticipate that this should continue in the coming year. During the past fiscal year, Renren Inc -ADR swung to a loss, reporting -19 cents a share vs. 11 cents a share in the prior year. For the next year, the market is expecting a contraction of 21.1% in earnings (-23 cents vs. -19 cents).
  • 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 60.0% when compared to the same quarter one year ago, falling from -$15.40 million to -$24.63 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, Renren Inc -ADR's return on equity significantly trails that of both the industry average and the S&P 500.
  • The share price of Renren Inc -ADR has not done very well: it is down 7.53% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
  • RENN, with its decline in revenue, underperformed when compared the industry average of 9.1%. Since the same quarter one year prior, revenues slightly dropped by 5.6%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.

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 6.2%. Since the same quarter one year prior, revenues fell by 36.0%. 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.
  • Zynga Inc 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.

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