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Social Media ETF Stung By Analyst Downgrades

This article was originally published on ETFTrends.com.

Amid Thursday's carnage in the technology sector, the Global X Social Media ETF (SOCL) followed the broader market lower, but Apple Inc.'s (AAPL) was not the primary reason the social media exchange traded fund slipped.

SOCL, which tracks the Solactive Social Media Total Return Index, staggered yesterday following downgrades to some of the fund's marquee components, including Facebook Inc. (FB). Following tumultuous performances by Facebook and other social media companies, SOCL posted a double-digit loss in 2018.

On Thursday, Canaccord Genuity released a note with some downbeat commentary on Facebook, Twitter Inc. (TWTR) and Snap Inc. (SNAP). Twitter and Facebook are SOCL's second- and third-largest holdings, respectively, combining for 20% of the fund's weight.

“For instance, the analysts in coverage lowered their price target on FB shares to $180 from $185, saying the security could remain range-bound for part of 2019,” reports Schaeffer's Investment Research. “However, they kept their 'buy' endorsement in place on the FAANG stock because they believe recent changes will be good for users and monetization, and that operating margins should bottom this year, which will lead to earnings growth in the coming years.”

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Canacord Genuity is not too enthusiastic about Twitter.

“Canaccord Genuity lowered its price target on Twitter shares to $32 from $34 and maintained its 'hold' rating. It waxed pessimistic on monthly and daily average user growth, and cited a 'premium valuation' that could make it difficult for the stock to rise,” according to Schaeffer's.

Broadly speaking, social media stocks usually trade at premiums to broader equity benchmarks. For example, SOCL's 2018 price-to-earnings ratio of almost 27 is well above that of the S&P 500.

“Finally, SNAP's price target was lowered to $6.25 from $8, and its rating stayed at a 'hold.' Canaccord Genuity's wrote that "consensus is too optimistic regarding margin expansion." The Snapchat parent's shares are down 0.4% at $5.79 today, extending their dramatic downtrend that started back in February when they were trading around $20. The stock traded as low as $4.82 back on Dec. 21,” according to Schaeffer's.

SNAP is a top 20 holding in SOCL.

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