In most cases, insider trading sentiment at companies within a certain industry is presented in a very fragmented manner, assuming that insiders are isolated from one another. Sometimes, however, it’s important to looking at the insider sentiment surrounding a basket of related stocks, whether it be industrials or tech. One pseudo-industry that has gotten a lot of attention this year is the social media companies. While this term is thrown around the blogosphere quite loosely, it’s important to realize that most investors have a broader definition of “social media” than just Facebook Inc (NASDAQ:FB) and LinkedIn Corporation (NASDAQ:LNKD).
Without further ado, here’s a look at how insiders have been trading the social media-related stocks. Year-to-date returns are provided, and insider trading activity is tracked from January 1st, 2011 to present day. A sentiment rating is given, and it’s worth mentioning that insider buys typically carry more weight than their bearish counterparts.
As empirical studies and our research have shown, it often takes months for the subtleties of insider trading to take effect on a stock’s price, though aggregate data suggests that investors who mimic or “monkey” insiders can beat the market by 7 percentage points a year.
|Stock||Insider Sentiment||# Insiders (B/S)||YTD Ret %|
Facebook Inc (NASDAQ:FB)
Pandora Media Inc
As a group, our social media basket has returned an average of -13.3% in 2012 thus far, weighed down by laggards like Groupon (NASDAQ:GRPN), Zynga Inc (NASDAQ:ZNGA), and Facebook Inc (NASDAQ:FB). Interestingly, Zynga, which pre-announced a third quarter loss due to weak mobile revenue and loss of casual gamers, has seen the most insider sales without a buy. Over the past year and a half, Zynga has seen eight of its executives sell shares, the most notable being CFO David Wehner and EVP of Games Steven Chiang. Just a few weeks ago, Chiang sold close to a fourth of his total holdings, and the stock has lost 24.5%. Going forward, Zynga faces a number of concerns including: (1) the loss of top talent to peers in the industry, (2) an inability to mesh well with the mobile platform of Facebook Inc (NASDAQ:FB), and (3) proposed Q4 cost-cutting measures. While it trades at an attractive valuation – book and sales multiples more than 50% below industry averages – Zynga is a value-trap until it can sure up these issues.
Similar Zynga, insiders have also been justifiably bearish at Groupon, which has lost close to three-fourths of its value since the start of the year. Most of Groupon’s issues have been due to its questionable business model, where it is almost wholly reliant on taking massive portions of merchant partners’ profits. In the future, investors are likely concerned that the company will be viewed as a business incubator only, dropped when merchants obtain enough customers themselves. The company has launched customer analytics program “Groupon Works” to strengthen its existing partnerships, though Google Offers is encroaching onto this territory, offering a far more generous renumeration schedule that pays businesses in a week or so, in comparison to Groupon’s average payment period of 60 days. Since the company’s insider sale by Brian Totty, Groupon has released disappointing Q2 sales data, amid the usual accounting concerns, this time in its Groupon Goods segment. Groupon actually trades at a P/B (4.6X) above the industry average (3.7X), so there’s no striking value play here at the moment.
Likewise, Facebook Inc (NASDAQ:FB) has seen its shares plummet by almost 50% since its IPO, though insider buying activity has somewhat positive, with one bullish move in August, when Netflix, Inc. (NASDAQ:NFLX) CEO Reed Hastings bought a little over $1 million worth of shares. Inversely, another Director, Peter Thiel, has sold close to 6 million shares of Facebook Inc (NASDAQ:FB); click here to see the full details. A new retail push and an upcoming partnership with Apple’s iTunes should help investors to feel a bit more bullish, though Facebook ultimately faces the same issues it always has: mobile advertising. Interestingly, we think that Facebook Connect is another way for Zuckerberg and Co. to monetize their user base, and project that it can generate $4.5 billion in annual revenues by 2015. Analysts expect Facebook Inc (NASDAQ:FB) to grow its EPS by 27.2% a year over the next half-decade, though this growth is already factored into its stock price, as it sports a PEG ratio in excess of 4.0.
Another overvalued social media company that has seen better success is LinkedIn, which is up over 80% year-to-date. While there are similar concerns with how LinkedIn can do mobile ads, the company has a much more diversified business model, generating close to a clean split in ad revenues, premium subscriptions, and job listings. The last insider to buy shares of LinkedIn was Director George Battle, who bought close to 25,000 shares a little over a year ago. Since the purchase, Battle has made a profit of $1.7 million from the trade. Shares of LinkedIn currently trade at a trailing P/E of 983X and a forward P/E of 93X. It’s worth mentioning that these metrics are slightly off their short-term averages over the past 6-12 months. In contrast to Facebook Inc (NASDAQ:FB), LinkedIn blew away the Street’s estimates in its most recent earnings release, posting revenues up 89% year-over-year.
The last stock we’re going to go into detail about here is Yelp Inc (NYSE:YELP), which has given investors a modest return in 2012, and has seen one insider purchase, by Diane Irvine earlier this year. A major boost for the company is its integration into Apple’s iOS 6 software, though it can’t be too happy about the number of complaints the Maps app – in which Yelp is predominantly featured – has gotten. Additionally, Google’s acquisition of Frommer’s travel advisory service earlier this year represents a major risk to Yelp, which could see its customers turn to a search-integrated platform. Rumors have been swirling of a Yahoo! Inc (NASDAQ:YHOO) takeover, though nothing has been announced yet. Yelp does trade at overvalued book and sales multiples, as it seems that investors are hoping the company figures out its mobile monetization questions.
For a longer look at the insider trading sentiment surrounding Facebook Inc (NASDAQ:FB) and the rest of these media stocks, continue reading here on Insider Monkey.