Wall Street Beat: Tech Earnings Highlight Weakness in Social Network Sector

Twitter and LinkedIn showed signs of slowing growth, but Akamai and Alcatel-Lucent had some positive news

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Fri, February 07, 2014

IDG News Service (New York Bureau) — Tech sector earnings this week stirred concerns about growth for social media companies LinkedIn and Twitter but highlighted positive trends for some networking and cloud services companies.

Meanwhile, weak economic growth in emerging markets caused IDC to lower its forecast for global IT spending this year.

Professional social network LinkedIn said Thursday that revenue for the fourth quarter was US$447.2 million, an increase of 47 percent year over year. Increased demand for Talent Solutions, a premium-fee recruitment package, helped boost sales. However net income, dragged down by stock-based compensation expenses, was $3.8 million, a drop of 67 percent year over year.

The company said revenue for the year is likely to total $2.05 billion, less than the $2.16 billion average analyst estimate, according to Thomson Reuters. First-quarter sales forecasts for $455 million to $460 million came up short of analyst expectations by as much as $10 million.

LinkedIn shares were trading at $209.45 Friday afternoon, down by $14.05.

Microblogging site Twitter reported its first earnings statement as a public company on Wednesday, and while sales jumped year over year, the announcement sparked worries about slowing user growth.

The company said revenue for the quarter ending Dec. 31 was $243 million, up 116 percent year over year. Its loss, however, amounted to $511 million, far greater than its loss of $8.71 million a year earlier.

Twitter added 9 million users, or 3.8 percent more, to the service in the last three months of 2013, which was below what analysts were hoping for.

"Twitter may be finding it more difficult to capture a more mainstream audience," according to a Morgan Stanley research note. "Q4 results show signs of slowing user growth and engagement -- potential risks include large internet competitors adding similar functionality to their existing platforms, similar services popular outside the US and Europe gaining traction in developed markets, or users spending less time on Twitter."

Even though the company showed its ad business is doing well, investors are obviously concerned.

Twitter shares plunged Thursday to $50.03, down by $15.94. They recovered somewhat Friday afternoon, trading at $53.96, still significantly lower for the week.

News from the networking and cloud-platform sector was positive this week. Akamai announced fourth-quarter revenue of $436 million, up 15 percent year over year, and net income of $80 million, up 18 percent. Akamai provides cloud services for delivering and optimizing online content and applications, centering around its Intelligent Platform.

"Driven by strong traffic growth in social media, gaming, online video and software download and robust demand in e-commerce over the holiday season, Akamai reported another strong quarter," according to a research note from analysts Greg Miller and Eric Chu at Canaccord Genuity.

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