Can a New Social Media Nightmare Kill the Tech Bull?
Just one week ago, tech stocks were leading the market on its post-correction romp toward new highs.
The biggest, most recognizable names in the sector had shaken off the February drop and returned to form. Some of the melt-up’s strongest performers continued to build on their tremendous first-quarter gains.
But as I pointed out last week, Facebook (NASDAQ:FB) was sticking out like a sore thumb. It was the only member of the FANGs that had failed to post double-digit gains so far this year. While most stocks in the tech space blasted higher, Facebook shares were stuck in neutral.
That’s when everything started to fall apart.
You already know how Facebook shares tanked after we found out a consulting firm obtaining data on more than 50 million Facebook users without their permission. The stock continued its slide yesterday as the government stepped in. That’s right — the FTC is now conducting a probe into Facebook’s practices, along with “half a dozen congressional committees,” per Bloomberg.
Even after yesterday’s modest tech recovery, all eyes are on the FANGs. The Facebook revelations have triggered a wave of anti-tech sentiment that’s playing out in real-time. Reports detailing Facebook’s slide and its potential impact on the “overvalued” tech sector are the top stories on virtually every finance site.
Sometimes, investors need an excuse to sell. The Facebook debacle is beginning to look like one of these critical events. In fact, the selling is already spreading to other social media stocks that have little to do with the Facebook scandal.
Twitter Inc. (NYSE:TWTR) and Snap Inc. (NYSE:SNAP) are now both dropping in sympathy with the mighty Facebook. Twitter cratered more than 10% on Tuesday, while shares of SNAP lost nearly 3%.
When we cashed out our Facebook trade in January, we noted how Twitter had recovered more than 50% over the past five months, compared to a paltry 7% gain posted by Facebook. The social media also-ran that never did anything right had doubled its share price in just six months and even booked its first profit earlier this year.
Twitter wasn’t the only Facebook alternative to catch a bid this year, either. Snap also posted a bang-up quarter, launching the stock off its lows. Snap made a big push for new ad dollars by opening its platform to ad agencies and other tech firms, helping to propel the stock to double-digit gains.
I thought Facebook’s days of bullying Twitter and Snap shares had ended as these two stocks posted impressive comebacks. But that’s clearly not the case. The social media sector is burning. As contagion sets in, we’ll have to adjust our strategy while the Facebook drama continues to play out.
For now, we’re going to stay away from the social media space and wait for the storm to clear. This social media nightmare could get a lot worse before all is said and done…