The rout in social media stocks is burning investors who piled into one of last year's most popular exchange-traded funds.
The Global X Social Media ETF, which saw assets rise 10-fold last year, sank 2.7% on Wednesday, bringing its decline from April 23 to 12%. Among its holdings, Twitter Inc. is down 33% over the period, while Yelp Inc. lost 18% and Pandora Media Inc. slipped 21%. Almost 400,000 Twitter options changed hands yesterday and about 600,000 the day before as traders rushed to hedge against more losses.
Social media companies have fallen eight of the past 11 days amid concern that user growth is slowing and valuations are excessive after last year's 64 percent rally. Twitter, the San Francisco-based short-message service, is trading a record low after insiders were set free this week to sell equity that had been locked up since initial offering.
“You've had this market that's had a very good run for the last five years or so and you've had investors get very comfortable with risk, until recently,” said Kevin Caron, a market strategist at Stifel Nicolaus & Co., which manages about $160 billion. “The momentum has faded.”
About $2.3 million was pulled from the Social Media ETF last month, the first withdrawal since June, data compiled by Bloomberg show. The 30-stock security had assets of $125 million in December, compared with $12 million at the end of 2012.
The combined market capitalization of Twitter, LinkedIn Corp., Facebook Inc., Pandora, Yelp and Groupon Inc. reached $195.1 billion yesterday, the lowest level this year, according to data compiled by Bloomberg. The group has lost $17.7 billion in total equity value over the last two sessions. On May 6, the companies saw their biggest single-day drop since at least November.
Twitter shares plunged even after early investors Chris Sacca and Rizvi Traverse Management pledged not to sell in a sign of confidence in the company. Chief executive Dick Costolo and co-founders Evan Williams and Jack Dorsey also said they are hanging onto their stock.
“People have no excuse to be long at this point,” said Ben Kelly, an analyst at Louis Capital Markets. “The growth isn't great. They're not growing at all, in fact, so everyone's starting to think: Is this the saturation point now? And now there's a pile-on.”