While Priceline’s (PCLN) bid for OpenTable (OPEN) last week has placed many companies that offer web based services in the sites of many investors (see my discussion from earlier here), the larger “pure-play” social media stocks have largely been excluded from the conversation. Over the last few months, the price action of Facebook (FB), LinkedIn (LNKD) and Twitter (TWTR) shows a lack of correlation to the other internet stocks, despite being in a fairly narrow portion of a broader sector. Maybe this is a sort of oversimplification, and possibly speaking more to my bias about the companies and their near term prospects, but I would place the three in the title of one of my favorite Clint Eastwood westerns: The Good, The Bad and The Ugly.
The GOOD: Facebook
The stock had the smallest peak to trough decline of the three, down about 24% from mid March to late April, down only about 11% from the prior highs, and up 18% on the year. While the stock has not roared back like some smaller net names, the stock has traded well.
The one year chart below shows the stock essentially at the mid point of the 2014 range, with support down at $57, just above its 200 day moving average.
So the technical set up is good, not great, as it has failed to show a whole heck of lot of upward momentum as the Nasdaq hovers near 14 year highs. So the one knock is that it shows poor relative strength to many peers.
Implied Volatility, the price of options, looks pretty good for those looking to make directional bets in FB, as it approaches 2 year lows:
The BAD: Twitter
If it wasn’t for TWTR’s recent 25% rally off of the all-time lows made in May, this one would be in the downright despicable category, but it appears that, at least for now, the sentiment and the poor price action might have bottomed. Another reason for just being Bad, is that the stock, while down 50% from the all-time highs made in December, and down 40% on the year, is still up 45% from its November IPO price of $26.
From a technical standpoint, the chart faces some steep challenges despite recently breaking the downtrend that has been in place since the December highs. The early May breakdown into and out of its IPO lockup expiration will be a level that will take a considerable piece of good news to breach and hold. (we are long an out of the money call spread in Sept for such an event, but recognize will not be an easy task, read here):
As would be expected in the vol environment that we are in, implied vol in TWTR is nearing all time lows, but has been recently elevated on the stock’s recent bounce as last week saw a considerable amount of upside call buying in Sept expiration, from June 12th:
1. TWTR – The Sept 50 calls traded over 60k on the day, mostly buyer initiated. Average price was 0.87. We closed out the TWTR calendar for a gain and initiated a new trade in the stock yesterday. TWTR reached its 50 day ma yesterday for the first time since February. TWTR’s next earnings report is slated for mid-August.
On a historical basis, despite being a 40+ vol name, options prices for TWTR are relatively cheap, which is one reason why we rolled our bullish trade in Sept from a calendar to a vertical and possibly one reason for the large out of the money call buying last week.
The UGLY: LinkedIn
This one is downright disgusting. First things first, it topped out in mid September months before most of its peers and has been descending lower in a series of lower highs and lower lows and declined 47% from the Sept highs to the recent May lows. The stock’s 20% bounce off of the recent lows is impressive, but appears to have lost steam, and it remains down 36% from the all time highs. A break below $160 could be the first step to a lower low:
On the vol front, there is not much to add aside from the fact that it will likely remain a 30 to 40 vol name and see spikes into events like earnings that see options prices nearly double only to give back most after the event.
IN SUM: FB acts the best, has the most reasonable options prices of the three, which makes sense when you consider FB’s $165 billion market cap and less movement of late compared to LNKD and TWTR’s roughly $20 billion market caps. TWTR looks to be in the process of forming a base after its extended downtrend from the December high near $75. And LNKD looks the worst, in a clear downtrend that looks likely to continue despite the overall strength in Nasdaq stocks over the past 2 months.