MorningWord 2/5/16: GARP Hitting a SNAG with FANG

by Dan February 5, 2016 9:30 am • Commentary

Last night after the close, LinkedIn (LNKD) reported Q4 results that were better than expected, but guided down their outlook for the current quarter and 2016, shares are down 30% in the pre-market.

My initial response was quite simple, the one year chart showed massive gaps both higher and lower after the last 4 earnings reports (prior to last night averaging about 12.5%) and my take on valuation from my preview yesterday:




Trust me, I am no Nostradamus, as pointed out by a response to the Tweet above:

Mr. Smith makes a very good point. But aside from a few high valuation high growth tech stocks (Facebook and Google) investors are reconsidering the whole Growth at a Reasonable Price (GARP) mantra that worked so well in the last leg of the bull market.  I have long said that FANG will be the last battle fought in the aging bull market, and the price action of AMZN (down 16% since Q4 earnings and down 22% from its all time highs made in Dec), NFLX (down 16% since Q4 earnings and down 32% from its all time highs made in Dec), GOOGL down 10% from its post earnings highs, and all time highs made earlier in the week, and even FB down 7% this week from its post earnings highs tells you that GARP and FANG might have hit a SNAG.

And I will tell you this, a stock like LNKD, down 30% in one fell swoop should not be dismissed as a one off. Wall Street sentiment on LNKD was still white hot, despite the stock already being down 30% from its 52 week and all time highs:


On Wednesday in this space (MorningWord 2/3/16: Game’s the same, just got more fierce) I highlighted what seems like a never ending list of once hot stocks, sub sectors and mini-bubbles that have inflated and burst over the last couple years, now throw LNKD onto the heap.

If you think that LNKD, TWTR, NFLX, AMZN, EBAY, P, YELP, and Z’s disgusting price action means you should hide out in FB and GOOGL, think again. This is a massive unwind, a re-rating of risk which has another leg when private market values of the so called Unicorns like Uber, SnapChat and Spotify start to take hits. This will then create a feedback loop and bring even more downward volatility in public equities to raise cash given the illiquidity of the private market holdings

LNKD may be a buy down 30%, or it may continue to massively overshoot as the company (they are not alone in this) has been revealed as bullshitters on giving guidance about their business.  There is no way you can tell me that a company who has been public for 19 quarters, moved on average 11% following each report (and declined half the time) has been giving realistic guidance. They are either pulling it out of their asses or lying.