Friday, 7 February 2014

LinkedUp to your Twitter sentiment

I see that LinkedIn numbers disappointed the market, after the US close yesterday, following the publication of another sequential quarter which showed lower unique visitor and page view metrics.  At least the company moved into small GAAP net income profitability.   All of this a day after Twitter's inaugural results did not fully reach investor hopes.  LinkedIn shares can expect a bloody trading session today just as Twitter suffered on Thursday. 

We all know that social media trends fall in and out of fashion.  The good AoL numbers yesterday reminded us all that some of these stocks will go on multi-year 'journeys' too of being 'in', 'out' and then back 'in' fashion. 

Yesterday when I was writing up the Twitter numbers I mused about why I bought Twitter shares on the first day of their listing, in November, for my pension fund.  Back then I wrote that:

'That's why Twitter is a perfect investment for my personal pension fund.  I can see the corporate journey they are on and - simply put - I like it and believe in it.  Twitter is progressively going to be a much bigger part of any users life over the next few years.  Advertisers will move in further to tap this and Twitter's revenues, cash flow and ultimately profits will bloom.  I can also see, as described above, that it will be volatile'.

And it was volatile yesterday for Twitter shareholders and will be for LinkedIn ones today.  Let's not forget though that Facebook shares halved from their IPO price and have since tripled. 

What really matters is sentiment.  Remember back to the three years after 2000?  At the start of that period 'eyeball multiples' and other fancy justifications hailed the next stunning technology space offering. By 2003 I remember scanning for faded tech names where cash on their balance sheet was in excess of the market cap. 

In today's market the consensual switch from 'believer' to 'non-believer' on an individual security can be subtle - and play out over time - but if you combine it with more general risk-aversion then life can get volatile very quickly. 

Take the AAII (American Association of Individual Investors) weekly sentiment survey that was released yesterday.  Not only were bears nearly nine percentage points higher than bulls but 'neutrals' were again well over a third of respondents.  And look at the broader context that these numbers are in: bullish proportions are way below medium-term averages.  No wonder Twitter shares fell so much.

Week ending 2/5/2014    Data represents what direction members feel the stock market will be in the next 6    months.
 
Bullish 27.9%
down 4.3
Neutral 35.7%
up 0.6
Bearish 36.4%
up 3.6
Note: Numbers may not add up to 100% because of rounding.

Change from last week:

 Bullish: -4.3
 Neutral: +0.6
 Bearish: +3.6

Long-Term Average:
 Bullish: 39.0%
 Neutral: 30.5%
  Bearish: 30.5%
 
The better news is that with the bullish proportion of respondents getting close to the 25% level, the market is reaching a 'contrarian buy' point.  Combine that with an overly cautious view of how a business is developing...and such shares could fly.  Just look at Facebook over the last nine months or so as an example.
 
That's something I will be thinking about as I periodically tweet today. 

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