NEW YORK (TheStreet) -- When it comes to advertising on social media, LinkedIn (LNKD), Twitter (TWTR) and other platforms are being left in the dust by Facebook (FB). And their stocks are paying the price.
LinkedIn became the latest golden child to be battered by Wall Street after it offered a tepid earnings report and lowered full-year guidance on Thursday. Shares plunged as much as 27% in after-hours trading and were down more than 20% at about 12:45 p.m. EDT Friday.
Several analysts stepped up to defend the stock, which has helped it remain above the $200 level.
So what hurt LinkedIn and caused the management team to pull down its guidance? Three reasons were pointed out on the call:
- Costs associated with the purchase and integration of Lynda.com;
- Foreign exchange headwinds anticipated (although those trends seem to be reversing in the last few weeks); and
- Weakness in display advertising.
It's that last point which is particularly interesting. What's driving this weakness?
It appears to be the continuing trend away from display advertising toward programmatic buying, in which ads are placed by computer on a variety of Web sites based on number of factors, including price. Programmatic advertising ends up being cheaper for the buyer, which means less revenue for digital platforms.
Here are some comments from the LinkedIn call Thursday night:
"With respect to Display we began to see a steeper deterioration in the first quarter. This reverses Display's relative strength throughout 2014 with growth declining approximately 10% year-over-year. We were particularly impacted in Europe, where the ongoing shift of programmatic advertising caused a drop in demand for our traditional Display products. Going forward, Display will remain an important component of our product suite, albeit with lessening impact on the business. Q1 was the first quarter where traditional onsite ads comprised less than 50% of marketing solutions, a trend we expect will continue as we ramp our product suite."
LinkedIn is not the only company being affected by this trend. The following is from the Yahoo! (YHOO) earnings call last week:
"We continue to see steep year-over-year declines in premium and programmatic PC advertising. This has accelerated in Q4 and Q1, where we've seen more than $100 million of decline in each quarter. Our premium advertising declined 40% year-over-year, mostly due to a decline in sales booked directly to our properties. Audience declined 19% year-over-year due to lower prices paid per ad through programmatic pricing. We continue to do everything we can to stabilize and slow this decline ..."