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last updated 8 January 2015

Tech: Social media stocks lose their luster

The shine is off social media stocks, said Scott Thurm in The Wall Street Journal. “Investors who six months ago clamored for shares of social media firms have turned against them with a vengeance.” After Facebook last week issued a disappointing earnings report—its first as a public company—investors pushed the stock down 12 percent in one day and to a record low this week. Once touted as being worth $100 billion, Facebook is now valued at less than $65 billion and headed lower. Stocks in social gaming company Zynga also plunged more than a third, after it posted a quarterly loss and said it expected weak growth for the rest of the year.

Some investors are hearing echoes of the dot-com crash of 2000, said David Streitfeld and Evelyn M. Rusli in The New York Times. With shares of Groupon and Chinese social network Renren also far below their market debuts, investors are “infinitely more skeptical,” said investment consultant Nick Zaharias. It’s becoming clear that many Internet companies find it hard to translate their products—whether coupons, imaginary tractors, or “likes”—into profits. “The gleam has come off the word ‘social,’” said Internet analyst Ben Schachter. “The ground is now shifting underneath these companies’ feet at a speed that we didn’t see even in the late 1990s.”

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Corporations may soon “bid adieu to growing profits,” said Kate Linebaugh in The Wall Street Journal. Strong corporate earnings have been among the recovery’s few bright spots, but slowing economies in the U.S. and China, recession in Europe, and wary consumers could end 10 consecutive quarters of corporate profit growth. Third-quarter earnings by S&P 500 companies are now expected to shrink for the first time since the recession ended. Starbucks says its earnings will be lower after customer traffic slowed in both June and July. “This is a macro problem of weak consumer confidence,” said CEO Howard Schultz.

The worst U.S. drought in 50 years is driving up prices for beef, chicken, and milk, said Catherine Tymkiw in CNNMoney.com. The Department of Agriculture said last week that prices for beef and veal would rise 3.5 to 4.5 percent this year because of the higher cost of animal feed. Dairy products like milk and cheese are also expected to be 2 to 3 percent more expensive. This week, corn prices hit a new record after soaring more than 50 percent in the past six weeks.

“The U.S. auto industry was abuzz” this week after General Motors’ marketing chief, Joel Ewanick, was abruptly let go, said Jerry Hirsch in the Los Angeles Times. Sources say Ewanick did not properly vet the financial details of a $600 million sponsorship of the Manchester United soccer club by GM’s Chevrolet brand. Ewanick “failed to meet the expectations the company has of its employees,” GM said. Manchester United and GM ultimately signed an altered deal, with Chevrolet set to appear on the club’s jerseys beginning with the 2014–15 season.

Microsoft is phasing out Hotmail in favor of its Outlook brand, said Dina Bass in Bloomberg.com. Although Hotmail is the world’s most popular email service, it has recently lost ground in the U.S. to Yahoo Mail and Google’s Gmail. Hotmail’s 325 million global users can transfer their accounts and current user names over the next several months to Outlook.com, named after Microsoft’s popular corporate email software. The new service will have a clean, minimalist design, better links to social media networks like Facebook and Twitter, and efficient sorting tools.

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