Why Facebook (FB) and Other Social Media Stocks Were Killed Today

NEW YORK (TheStreet) -- Social media stocks were down across the board on Wednesday. Facebook (FB), Twitter  (TWTR) and Zynga  (ZNGA) all experienced downturns as heavy losses in social media and biotech stocks led the way down for the Nasdaq, which fell 1.4% to a six week low of 4,173.58 in trading today.

Facebook closed down 6.9% to $60.38, a day after it announced that it was purchasing virtual reality game maker Oculus VR in a $2 billion deal. 

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CEO Mark Zuckerberg has expressed high hopes for the company, saying, "After games, we're going to make Oculus a platform for many other experiences."

While investors have initially responded negatively to that vision, Facebook is not done innovating.

TheStreet Ratings team rates FACEBOOK INC as a Hold with a ratings score of C. TheStreet Ratings 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 16.4%. Since the same quarter one year prior, revenues leaped by 63.1%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Although FB's debt-to-equity ratio of 0.03 is very low, it is currently higher than that of the industry average. Along with this, the company maintains a quick ratio of 11.46, which clearly demonstrates the ability to cover short-term cash needs.
  • Powered by its strong earnings growth of 566.66% and other important driving factors, this stock has surged by 158.97% 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.
  • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. 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.
  • You can view the full analysis from the report here: FB Ratings Report
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