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Why Many Social Networks Saw Their Shares Crash Today

By Anders Bylund - Mar 18, 2020 at 5:46PM

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These companies aren't as immune to economic downturns as you might think.

What happened

Shares of many popular social network operators had another bad day on Wednesday. Dating services specialist Match Group (MTCH) fell 9.7%, microblogging veteran Twitter (TWTR 2.25%) closed the day 10.1% lower, and image-sharing expert Pinterest (PINS 3.03%) took a 13.6% haircut.

So what

These companies may not look like they should suffer much from the coronavirus pandemic, since social distancing efforts and quarantines only give their users more time to explore and enjoy their social networking services. But that's exactly what is going on, not just today but across the entire COVID-19 market chaos.

The virus panic continued to evolve today. The global count of coronavirus cases passed 200,000 for the first time and more than 100 people have now died from the COVID-19 disease in the United States. On the upside, the original hotspot of Wuhan, China, reported just one new virus patient for the second day in a row, indicating an effective containment effort in that city of 11 million people. Furthermore, a team of researchers at Oxford University has developed a much faster coronavirus test that can return results in 30 minutes, and also catches the disease in early stages without any medical symptoms.

So there's some good news and some bad news, but all of this just looks like uncertainty to many investors. Thus, the market dove again, the S&P 500 benchmark fell 5.2% and the Dow Jones Industrial Average dropped 6.3%.

A young woman crosses her fingers and bites her lip while frowning at her smartphone.

Image source: Getty Images.

Now what

So why aren't these stocks surging rather than swooning? Well, under these circumstances, meeting a new romantic interest through Match Group platforms like Tinder, Match.com, or OkCupid shouldn't be high on anybody's priority list. Going beyond Match Group's particular problem, all of these companies depend heavily on advertising revenue. Eyeballs on their screens are only useful when advertisers are ready to pay for that extra attention, and right now, they can't really count on that. Nearly every market sector is grinding to a halt as both Americans and many foreigners find themselves locked up at home, working through the internet at best. The market is losing a ton of economic activity, and the damage gets deeper the longer the virus containment efforts continue.

So it actually makes sense that social networking stocks are getting swept up in the coronavirus panic. Their next financial reports should show deep scars from this experience. Investors are pricing that upcoming pain into the stocks as we speak: Match Group has fallen 33% over the last month while Twitter took a 40% price cut. Pinterest is crashing even harder with a negative 1-month return of 53%.

But this, too, shall pass. Patient investors know that the market eventually will bounce back from this dark trough. Buying blue-chip stocks while they're cheap will set you up for long-term success in any market.

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Stocks Mentioned

Twitter, Inc. Stock Quote
Twitter, Inc.
TWTR
$38.23 (2.25%) $0.84
Match Group, Inc. Stock Quote
Match Group, Inc.
MTCH
Pinterest Stock Quote
Pinterest
PINS
$18.71 (3.03%) $0.55

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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