Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

Why Social Media Stocks Are Back on Top, Getting Stronger

Wednesday, July 31st, 2013
By for Profit Confidential

Social Media Stocks Are Back on TopSocial media stocks appear to be sizzling on the charts once again in what has largely been an on-again, off-again trading pattern.

Facebook, Inc. (NASDAQ/FB) proved this after surging 30% on July 25, following its reporting a blow-away second quarter in which the social media giant beat on earnings (36%) and revenue growth (53%) year-over-year. The company’s 1.15 billion monthly active users as of June 30 was impressive. Better yet, of this amount, about 819 million of these users were mobile, up 54% year-over-year.

The numbers are excellent. I continue to like Facebook. But more importantly, I see major growth going forward for Facebook in the critical mobile market, from which the company derived 41% of its total advertising revenue. The company remains a buying opportunity, especially if it can monetize its massive subscriber base.

Facebook Inc Chart

Chart courtesy of www.StockCharts.com

A highflyer in the Internet space, Yelp, Inc. (NASDAQ/YELP) operates local business sites across many cities and countries and links consumers to local businesses. Yelp’s valuation is high, but revenues are estimated to grow 59.7% this year and 43.0% next year, according to Thomson Financial. Yelp is also estimated to turn a profit of $0.18 per diluted share in 2014.

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Yelp Inc Chart

Chart courtesy of www.StockCharts.com

On the speculative side is social games developer Zynga Inc. (NASDAQ/ZNGA), which holds some promise in spite of it being down from its $14.00 level in May 2012, when Facebook dropped games from its offering. Zynga is at best extremely speculative and only for traders.

Zynga Inc Chart

Chart courtesy of www.StockCharts.com

In China, a key small-cap social media networking play is Renren Inc. (NASDAQ/RENN). The company operates a real-name social media networking Internet platform in China. The platform is for social networking, and it allows users to connect with each other. The social media company’s services include social networking, online gaming, social commerce, and business social networking.

Renren Inc Chart

Chart courtesy of www.StockCharts.com

The company had 184 million active users as of March 31, and based on the massive Internet market in China, it wouldn’t be a surprise to see the company’s active users double, triple, or even quadruple over the next two to five years. Then there’s also the possibly of a company like Facebook buying Renren to advance its audience in the Chinese market.

As we move forward, the Internet space is only going to get stronger and offer more buying opportunities, especially in the area of social media stocks.

Find out what my favorite video streaming companies are in “Now That the Video Streaming Wars Have Begun, Who Will Win?

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George Leong - Financial Planner, ConsultantGeorge Leong, B. Comm. is a Senior Editor at Lombardi Financial, and has been involved in analyzing the stock markets for two decades where he employs both fundamental and technical analysis. His overall market timing and trading knowledge is extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi’s popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. He has written technical and fundamental columns for numerous stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as a financial analyst with Globe Information Services. Add George Leong to your Google+ circles