On July 24th Facebook's (FB) earnings report unleashed the animal spirits on Wall Street. With one set of numbers an entire industry was validated. Despite claims to the contrary, very few saw it coming. To analysts of a certain age it was frankly stunning that anyone would willingly click an advertisement on their smartphone. Mobile ads seemed intrusive, annoying and a counterproductive use of ad money.
Yet there it was: 41% of Facebook's advertising revenue in Q2 came from mobile. When Facebook shares ramped 28% the next day, it became a professional imperative for fund managers to own shares of anything with an app and sort of advertising connection.
In the last month Yelp (YELP), Trulia (TRLA), LinkedIn (LNKD) Zillow (Z) and GroupOn (GRPN) have gone up more than 30%. At this point if you're running money professionally you can't justify not being long anything remotely related to this space.
It's one thing to whine about whether or not the valuations make sense. The ticker isn't right or wrong. It just is. Individuals can sit these moves out but pros are in the business of booking profits regardless of what valuation models say.
"There were skeptics lined up out the door about Facebook and I've had my own reservations about the company," says Eric Jackson of Ironfire Capital. As a result traders just started grabbing anything with social or mobile attached to it.
The stocks are all going to be "nosebleeders" as Jackson says. That means the valuations are pretty much tossed out the door. Institutions need to own stocks in the space and there aren't enough of them to go around at the moment.
We've seen this move before of course. This is precisely what happened with anything.com in the late '90s. That doesn't mean short. It doesn't even mean investors need to run away screaming. It means only this: stocks aren't supposed to move 20% higher with this kind of regularity. These moves will end in tears. The market will be flooded with IPOs and demand for mobile ad shares will fade.
The conclusion is inevitable but the timing is unknowable.
Do with that information what you will.
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