Dumping social-media stocks that show any sign of weakness is trending on Wall Street.
Shares of LinkedIn Corp. plunged Friday after the professional-networking service gave a disappointing outlook for the second quarter on Thursday, hurt largely by its pending purchase of online learning company Lynda.com. On Friday, LinkedIn shares dropped $46.92, or 18.6 percent, to $205.21.
Twitter shares, meanwhile, closed Friday at $37.84, having lost around a quarter of their value from the beginning of the week. On Tuesday, the messaging service reported revenue and offered an outlook that fell short of Wall Street’s expectations. On top of that, investors had been rattled when Twitter’s earnings report inadvertently came out nearly an hour ahead of schedule.
The double-digit stock declines at Twitter and LinkedIn show that investors have little patience for weakness in highly valued social-media stocks. Twitter attributed its revenue shortfall to weaker-than-expected contributions from some of its newer advertising products. The shortfall came at a time when investors were looking for stronger advertising growth to make up for less-than-stellar user numbers. Without either, investor confidence was shaken.
Sterne Agee analyst Arvind Bhatia said he wasn’t surprised that Wall Street reacted severely, given Twitter’s high share-price valuation and – at least until this week – its strong performance this year.
LinkedIn, whose high-flying stock has been battered for far less than Thursday’s weak outlook, gave investors a rare negative surprise. It said its weak view resulted from changes in currency-exchange rates, costs of its pending acquisition of Lynda.com and other items. The $1.5 billion deal is the largest in LinkedIn’s history.
For the current quarter, Mountain View, California-based LinkedIn expects adjusted earnings of 28 cents per share on revenue of $670 million to $675 million. Analysts were forecasting much higher adjusted earnings of 74 cents per share on revenue of $719 million, according to FactSet.
The Lynda acquisition is expensive, but LinkedIn is “building a great long-term business,” said BGC Partners analyst Colin Gillis.