Market commentary: Social media and the entertainment industry

While European markets had another flat day with most of the equity indexes posting small gains with the Euro Stoxx 50 down 0.19%, the Dax and the FTSE 100 closing almost flat, the US markets had solid daily gains with DJIA adding 1.20% and both  S&P 500 and the Nasdaq adding 1.03%.

Once again Oil proved to be a very volatile commodity rally back yesterday after dropping almost 9% on Wednesday’s trading. Asian markets were also positive, although Chinese stocks extended losses closing another day deep in the red.

With three quarters of this earning season over, during the last two weeks all major social media and some large entertainment companies reported their earnings to investors, which were closely watching these release to assess whether these industries still have upside potential after delivering an overall great 2014.

In the social media sector, the latest releases revolved around Twitter Inc and LinkedIn Corp, after last week very positive Facebook’s earnings and soring revenues announcement, and Google’s disappointing earnings and Advertisement revenues.

Twitter Inc was particularly under scrutiny by investors after the stock delivered a rather poor return over the last 12 months. The company exceeded expectation posting better than expected revenue of $479.1 million (+97.4% year-on-year), and higher profit than forecasted with an EPS of $0.12.

Although this were clearly good news for investors, the company also gave rather conservative guidelines and with analysts quite concerned with a still slow users’ growth, the stock plunged 5.5% in After-Hours trading.

Bloomberg has reported that Twitter had reached an agreement with Google which will start to integrate Twitter’s content in real-time within its search engine and will pay the latter an unspecified amount of data-licensing revenue. Although this development may help the social media to gain more traction, investors are still discounting the news as immaterial and only long-term beneficial.

On the other end, shares in LinkedIn have jumped 7.75% in After-Hour trading after adding over 2.50% during regular trading. The company delivered great results beating on both revenues that came in at $643 million (+43.8% year-on-year), and profit, posting an EPS of $0.61, $0.08 ahead of analysts’ expectations.

The company experienced growth across the board from Talent Solutions, up 57%, to Premium Subscriptions, up 19%, to Marketing Solutions, up 45%. These results helped LinkedIn to shack off some concerns that the company’s business model was becoming obsoleted and that the company’s platform was not able to keep up with potential competitor Facebook, which has very recently launched a beta version of its anticipated Facebook Office platform.

In the entertainment sector, this week both Walt Disney Co. and News Corp reported earnings.

Yesterday News Corp reported mixed results meeting analysts’ expectation on revenues that were flat year-on-year at $2.23 billion, while beating on profit by $0.02 posting an EPS of $0.26. News Corp’s major shareholder Rupert Murdoch was in the spot light last year when it attempted to acquire Time Warner Inc through Twenty-First Century Fox Inc, without succeeding and abandoning the merger proposal after Time Warner stated that the offer price was very far from reflecting the company’s real value.

In contrast, Walt Disney Co. reported good results largely beating estimations, posting revenues of $13.39 billion (+8.8% year-on-year and $520 million ahead of forecasts), and profits with a EPS of $1.27, $0.20 ahead of analysts’ expectations.

The company shares jumped 11.65% over the last two trading sessions, confirming the stock as one of the best performer not only in the entertainment industry but a across the entire S&P 500, delivering a trailing capital return of 41.36% over the past 12 months and a dividend yield of 1.12%.

This article was issued by Paolo Zonno Trader/Analyst at Calamatta Cuschieri. For more information visit, www.cc.com.mt . The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri & Co. Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.

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