The tech sector as a whole has performed admirably of late, but a few stocks have experienced wild fluctuations thanks to missed earnings expectations, poor future guidance, and simple investor impatience. We asked our Foolish contributors to select a few tech stocks that really took it on the chin recently. The unlucky three making our dubious list include LinkedIn (NYSE:LNKD.DL), Twitter (NYSE:TWTR), and Yelp (NYSE:YELP)
Tim Brugger: (LinkedIn): When does generating a 35% improvement in year-over-year revenues, a 50% spike in non-GAAP (excluding one-time items) earnings per share, and beating analyst expectations result in a nearly 25% drop in share price -- overnight? When you're LinkedIn. Unfortunately for LinkedIn shareholders, there was more to 2015's Q1 than beating expectations and reporting strong growth.
Due to its ramped-up hiring, underestimating costs associated with acquiring new accounts, and a 10% decline in display ad fees, LinkedIn lowered revenue and earnings forecasts for the remainder of the year. Actually, "lower" doesn't do justice to the revamped earnings expected in 2015. Last quarter CFO Steve Sordello estimated LinkedIn would earn $2.95 per share in 2015 on a non-GAAP basis. Now? Make that $1.90 per share.
Clearly, LinkedIn woefully underestimated costs more than anyone projected. LinkedIn's acquisition of job development site Lynda.com for $1.5 billion -- 10 times last year's estimated revenues -- will add to its overhead woes, but over $1 a share?
However, LinkedIn's nearly $55 stock price plunge the day following its disappointing forecast could be a gift for value investors. The basis for the generally bullish sentiment ahead of Q1's report hasn't changed: LinkedIn continues to deliver revenue growth, and will again this year. Expenses may have gotten away from management, but that's a (relatively) near-term hurdle. Over the long-haul, LinkedIn remains a fundamentally sound growth alternative for investors willing and able to exercise patience.
Brian Stoffel (Twitter): For the past couple of quarters, investors have been frustrated that Twitter hasn't been able to grow its user base as fast as expected. But over that time frame, Wall Street has more or less given the company a pass because revenue from advertising was booming.
Now, however, the company has a growing chorus clamoring for some type of change, because while revenue did grow by 74% year-over-year, it came in below expectations, and management's guidance was far lighter than many had hoped for. In a nutshell, people are worried that Twitter is blowing a golden opportunity.
There's a massive shift taking place in how advertising dollars are spent. The world's five largest economies are expected to grow mobile advertising spend from $32 billion in 2014 to $117 billion in 2018 -- a 38% growth clip per year. With Twitter unable to offer a vision for how non-users should view the service -- I think it of it as "the world's town square" -- the value of the company's advertising space is diminishing.
The company is now in a position where it will have to first convince the general public to sign up for Twitter, and then convince Wall Street that it has a solid plan to monetize the platform and take advantage of this major shift in advertising spend.
Sam Mattera (Yelp): Year-to-date, shares of Yelp are down more than 28%. Most of that loss comes in the wake of the company's most recent earnings report: shares of the local reviews giant plunged late last month following disappointing first-quarter results.
Yelp's quarterly revenue came in below expectations, and guidance for the second quarter was also weak. Yelp's traffic metrics showed a deceleration in its growth, somewhat alarming for a company whose business model remains speculative, and total monthly unique visitors rose only 8% on an annual basis, down from 30% in the same quarter last year.
Yelp's management blamed the disappointing revenue on a shift in execution. During the early part of the year, Yelp made a change to the way in which it organized its sales force. That move was a mistake, according to management, and lead to lower productivity. Yelp has already switched back, and its results should improve in the quarters to come.
Yelp is certainly not a stock for the risk averse. Under generally accepted accounting principles, it isn't profitable. Volatility has been the norm since its public market debut. The revenue miss -- particularly caused as it was by short-term execution issues -- can be overlooked, but slowing growth is worth paying attention to. Yelp may need to accelerate its traffic if its shares are to rebound.
Brian Stoffel owns shares of LinkedIn and Twitter. Sam Mattera has no position in any stocks mentioned. Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends LinkedIn, Twitter, and Yelp. The Motley Fool owns shares of LinkedIn and Twitter. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.