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
STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.


NEW YORK ( TheStreet) -- Twitter  ( TWTR) shares closed down 7.2% to $44.43 in trading on Wednesday, swept up in today's social media sell off. Analysts and investors have been concerned about Twitter's slowing growth rate.

Although ad revenue per timeline view have increased 76% to $1.49 over the past year, their timeline views per monthly average user overall in the U.S. have declined 6% over the past year.

Twitter shares are hitting 2014 lows after reaching highs of $74 after its November IPO opening price of $26. While analysts have varying ideas of what the stock's price target should be, Thomson Reuters has a consensus average price target of $51. The stock has been steadily declining since December

Analysts EPS estimates for the stock for 2014 are 1 cent. That estimate jumps to 21 cents in 2015. Some of the dipping stock numbers for the social media company can be attributed to short term investors cashing in on the stocks appreciation since its IPO.

Must Read: Warren Buffett's 10 Favorite Stocks

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.


NEW YORK ( TheStreet) -- Zynga  ( ZNGA) shares closed down 4.1% to $4.64 on heavy trading volume on Wednesday. The social game service provider saw its stock drop following the IPO of rival King Digital Entertainment  ( KING)

The nascent game maker has some analysts convinced that it is headed for bigger returns in the future, but it took the same hit today that other social media experienced.

When Zynga debuted on the market in December 2011, it accounted for 11% of Facebook revenues through its popular Farmville and Cityville games. However, it has failed to produce another smash hit and has been overtaken by King Digital's hit game Candy Crush Saga. With social media gamers looking for the next big game, Zynga has its work cut out for it to develop another major hit.

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STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

TheStreet Ratings team rates ZYNGA INC as a Sell with a ratings score of D+. TheStreet Ratings Team has this to say about their recommendation:

"We rate ZYNGA INC (ZNGA) a SELL. This is driven by multiple 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. 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 $7.73 million or 60.90% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • 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 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 gross profit margin for ZYNGA INC is currently very high, coming in at 84.84%. Regardless of ZNGA's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, ZNGA's net profit margin of -14.31% significantly underperformed when compared to the industry average.
  • The revenue fell significantly faster than the industry average of 10.9%. Since the same quarter one year prior, revenues fell by 43.3%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • 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 4.35, which clearly demonstrates the ability to cover short-term cash needs.
  • You can view the full analysis from the report here: ZNGA Ratings Report
STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

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