The evolution of the social media industry has been impressive
and its impact on everyday life and business palpable, but those
potential catalysts have not resulted in noteworthy returns for
investors in publicly traded social media firms.
As the much ballyhooed social media sector struggles to impress
analysts and investors, the impact on at least one ETF is becoming
clear. The Global X Social Media Index ETF (NASDAQ:
), now home to $17.2 million in assets under management, was the
first social media ETF to come to market.
Upon debut, the Global X Social Media Index ETF was criticized
by some for being too much of a niche product and praised by others
for being the first ETF to give investors access to what was
believed to be a rapidly growing sector. Regardless of what
interpretation is deemed accurate, one thing about SOCL became
immediately clear: a large portion of its near-term fortunes were
tied to the success
of the Facebook (NASDAQ:
As the world now knows, "success" and "Facebook IPO" probably do
not belong in the same sentence. The struggles of Facebook shares,
in large part, explain SOCL's 16.7 percent slide in the last three
months. SOCL features the largest allocation to the social media
giant of any ETF at 8.2 percent. The allocation is down from an
of 8.8 percent to Facebook in late May.
Facebook's flubbed IPO is an old problem, but there are new
issues that could make the next 24 to 48 hours the most critical of
SOCL's young life span.
One of Wednesday's biggest after-hours stories was the plunge of
), another social media darling. The maker of the CityVille and
Mafia Wars Facebook games tanked after reporting a of one cent per
share on revenue of $332 million. Analysts expected six cents on
revenue of $344.1 million.
Zynga slashed its full-year profit guidance to four cents to
nine cents per share from 23 cents to 29 cents. Analysts were
expecting 27 cents a share. The stock is down more than 37 percent
in the after-hours session. This is not good news for SOCL,
considering that Zynga is the ETF's thirteenth-largest holding with
a weight of almost 3.3 percent.
Zynga's tumble has pulled Facebook down more than 8 percent. In
other words, before Thursday's opening bell even rings and before
Facebook delivers its first set of quarterly results as a public
company, 11.5 percent of SOCL's weight is being taken to the
SOCL's problems do not end there, as the social media sector's
problems do not end with Zynga and its Wednesday evening dive. When
one stock in a sector sneezes, sometimes the others catch a cold.
When one social media stock sneezes, a plague seems to spread to
nearly the entire sector.
In Wednesday's after-hours session, Renren (NYSE: ), the
Facebook of China, slid 7.5 percent. Groupon (NASDAQ: ) fell 4.1
percent and Pandora (NYSE: ) lost 2.5 percent. Those three stocks
combine for almost 9 percent of SOCL's weight.
In fairness, LinkedIn (NYSE: ), SOCL's largest holding, and
Google (NASDAQ: ) - another top-10 holding in the ETF - have not
been adversely impacted by the social media slide. A combined
weight of almost 17 percent to LinkedIn and Google should insulate
SOCL from big declines. However, until Facebook, Zynga and friends
prove to the world that social media is a legitimate investment
thesis, SOCL is likely to be greeted with a wait-and-see approach
For more on social media ETFs, click .
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