{"id":19679,"date":"2013-09-08T01:39:47","date_gmt":"2013-09-08T08:39:47","guid":{"rendered":"http:\/\/drduru.com\/onetwentytwo\/?p=19679"},"modified":"2013-09-08T01:39:47","modified_gmt":"2013-09-08T08:39:47","slug":"valuation-update-internet-high-fliers-experience-large-mark-ups","status":"publish","type":"post","link":"https:\/\/drduru.com\/onetwentytwo\/2013\/09\/08\/valuation-update-internet-high-fliers-experience-large-mark-ups\/","title":{"rendered":"Valuation Update: Internet High-Fliers Experience Large Mark-Ups"},"content":{"rendered":"<p>Many internet-related stocks have been on fire lately. In many ways, the run-up has been about mobile, so it may not even be technically accurate to call this feature a valuation update on internet-related stocks. Regardless, the most notable change since <a href=\"http:\/\/drduru.com\/onetwentytwo\/2013\/06\/19\/valuation-update-facebook-falls-linkedin-remains-atop-internet-stocks\/\" target=\"_blank\">the last update in mid-June<\/a> is that the internet high-fliers have experienced significant run-ups this summer. Facebook (FB), Yelp.com (YELP), LinkedIn (LNKD), and Zillow (Z) experienced significant surges over the past 3 months.<\/p>\n<p>Click the chart below for a larger view of the price-to-sales (P\/S) ratios of select internet-related stocks. The chart is ordered from left-to-right by the latest P\/S ratio. (This will be the last update to include Kayak. It is off to the right and not included in the P\/S ordering). As a reminder, I use P\/S ratios instead of P\/E so that I can compare profitable and unprofitable companies.<\/p>\n<p><center><br \/>\n<figure id=\"attachment_19680\" aria-describedby=\"caption-attachment-19680\" style=\"width: 290px\" class=\"wp-caption aligncenter\"><a href=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2013\/09\/130906_InternetStockPriceSales.png\"><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2013\/09\/130906_InternetStockPriceSales-300x217.png\" alt=\"Price-to-Sales Ratios of Various Internet-Related Companies From March 6, 2012 to Sep 6, 2013\" width=\"300\" height=\"217\" class=\"size-medium wp-image-19680\" srcset=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2013\/09\/130906_InternetStockPriceSales-300x217.png 300w, https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2013\/09\/130906_InternetStockPriceSales.png 912w\" sizes=\"auto, (max-width: 300px) 100vw, 300px\" \/><\/a><figcaption id=\"caption-attachment-19680\" class=\"wp-caption-text\">Price-to-Sales Ratios of Various Internet-Related Companies From March 6, 2012 to Sep 6, 2013<br \/><\/figcaption><\/figure><br \/>\n<strong>Source: Yahoo Finance<\/strong><br \/>\n<\/center><\/p>\n<p>For comparison purposes, here is the chart from <a href=\"http:\/\/drduru.com\/onetwentytwo\/2013\/06\/19\/valuation-update-facebook-falls-linkedin-remains-atop-internet-stocks\/\" target=\"_blank\">the last update<\/a> (again, click for a larger view):<\/p>\n<p><center><br \/>\n<figure id=\"attachment_18469\" aria-describedby=\"caption-attachment-18469\" style=\"width: 290px\" class=\"wp-caption aligncenter\"><a href=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2013\/06\/130618_InternetStockPriceSales.png\"><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2013\/06\/130618_InternetStockPriceSales-300x217.png\" alt=\"Price-to-Sales Ratios of Various Internet-Related Companies From March 6, 2012 to June 18, 2013\" width=\"300\" height=\"217\" class=\"size-medium wp-image-18469\" srcset=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2013\/06\/130618_InternetStockPriceSales-300x217.png 300w, https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2013\/06\/130618_InternetStockPriceSales.png 912w\" sizes=\"auto, (max-width: 300px) 100vw, 300px\" \/><\/a><figcaption id=\"caption-attachment-18469\" class=\"wp-caption-text\">Price-to-Sales Ratios of Various Internet-Related Companies From March 6, 2012 to June 18, 2013<\/figcaption><\/figure><br \/>\n<\/center><\/p>\n<p>There are no major or dramatic changes in the ordering of the stocks. Pandora has moved up a few slots. FB has moved up one slot.<\/p>\n<p>I am honestly amazed, even baffled, at the market&#8217;s willingness to keep running up the valuations on these stocks. I believe price momentum has largely taken over, and as long as this momentum is in play a lot of money can be made continuing to play for more upside. Facebook has the added advantage of a very positive news cycle with analysts delivering major upgrades and with growing excitement over FB&#8217;s ability to monetize mobile users and video ads. Facebook&#8217;s latest upgrade was just this past Friday (September 6th) by Sun Trust Rbsn Humphrey which increased its price target from $40 to $55.<\/p>\n<p>Here is a quick rundown of how I have been playing some of these stocks:<\/p>\n<p><strong>Facebook (FB)<\/strong><br \/>\nAs noted <a href=\"http:\/\/drduru.com\/onetwentytwo\/tag\/fb\/\" target=\"_blank\">in earlier posts<\/a>, I am slowly building a short position in anticipation of an eventual sell-off. My original $20 target for 2013 is very unlikely, so I am now positioning for 2014 (yes, I am so relieved I covered my last short position in early June &#8211; it magically turned out to be THE bottom for 2013. See &#8220;<a href=\"http:\/\/drduru.com\/onetwentytwo\/2013\/06\/06\/facebook-still-bullish\/\" target=\"_blank\">Sentiment Clinic: Facebook STILL Bullish<\/a>&#8221; for more details on the trade). In the meantime, I have been loading up on call options to play the current momentum. The first round yielded a double. The second round ended on September 6th with a double on my first tranche and a quadruple on the second tranche (I doubled down on my call options when FB experienced a now rare pullback).<\/p>\n<p>The obvious question is if trading call options is so incredibly profitable on FB why bother shorting? My answer is that when the market&#8217;s euphoria takes off, there is simply no telling when the spigot of emotion turns off. It can happen overnight; it could be an unanticipated blip in an earnings report. I just want to be in position whenever it happens. The profits on the call options pay for the position while I wait. With the current momentum, FB has been surprisingly easy to flip&#8230;and the out-of-the-money call options STILL look relatively cheap to me.<\/p>\n<p>Bottom-line: FB has turned from goat to gloat as it has pulled off the rare feat of a full recovery from a busted IPO of historic proportions.<\/p>\n<p><center><br \/>\n<figure id=\"attachment_19683\" aria-describedby=\"caption-attachment-19683\" style=\"width: 490px\" class=\"wp-caption aligncenter\"><a href=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2013\/09\/130906_FB.png\"><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2013\/09\/130906_FB.png\" alt=\"What a difference a year makes!\" width=\"500\" height=\"350\" class=\"size-full wp-image-19683\" srcset=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2013\/09\/130906_FB.png 500w, https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2013\/09\/130906_FB-300x210.png 300w\" sizes=\"auto, (max-width: 500px) 100vw, 500px\" \/><\/a><figcaption id=\"caption-attachment-19683\" class=\"wp-caption-text\">What a difference a year makes!<\/figcaption><\/figure><br \/>\n<\/center><\/p>\n<p><strong>Google (GOOG)<\/strong><br \/>\nGoogle has been a disappointment. I was forced to turn from bullish (yep, I had a $1000 price target by year-end) to a bear just based on the technicals. The stock looks like it is churning through a major breakdown. I went after my first bearish position on Thursday&#8217;s rush toward 50-day moving average (DMA) resistance. A close above the 50DMA turns my sentiment around again. Beating August&#8217;s high will get me dreaming about the $1000 price target again&#8230;<\/p>\n<p><center><br \/>\n<figure id=\"attachment_19684\" aria-describedby=\"caption-attachment-19684\" style=\"width: 540px\" class=\"wp-caption aligncenter\"><a href=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2013\/09\/130906_GOOG.png\"><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2013\/09\/130906_GOOG.png\" alt=\"Google struggles with its 50DMA\" width=\"550\" height=\"375\" class=\"size-full wp-image-19684\" srcset=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2013\/09\/130906_GOOG.png 550w, https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2013\/09\/130906_GOOG-300x204.png 300w\" sizes=\"auto, (max-width: 550px) 100vw, 550px\" \/><\/a><figcaption id=\"caption-attachment-19684\" class=\"wp-caption-text\">Google struggles with its 50DMA<\/figcaption><\/figure><br \/>\n<\/center><\/p>\n<p><strong>Yelp.com (YELP)<\/strong><br \/>\nYELP has become my &#8220;guilty pleasure.&#8221; I have come to <strong>really<\/strong> appreciate the service over the past year or so, and I have been trading it from the long side for most of this year. I did a poor job of announcing my change of heart from bear to bull when I simply provided a disclosure in a February piece bearish on Facebook (see &#8220;<a href=\"http:\/\/seekingalpha.com\/article\/1123741-for-facebook-market-sentiment-has-changed-more-than-the-business-has\" target=\"_blank\">For Facebook, Market Sentiment Has Changed More Than The Business Has<\/a>&#8220;). Prior to this, I had focused on Yelp&#8217;s consistent inability to break through resistance around $28. I also did not (and do not) like the high valuation on a company that makes such small profits with an unclear growth path.<\/p>\n<p>I sold my latest round of call options into Thursday&#8217;s pop. I missed Friday&#8217;s impressive surge above the upper-Bollinger Band on the heels of upgrades from Barclays to overweight and a mind-boggling price target from Deutsche Bank at $81 (rating is &#8220;just&#8221; a buy). I think the stock is ridiculously over-valued: forward P\/E of 260 and a $4B market cap! Yet, I have chosen not to fight this one as long as the momentum is so friendly. I can&#8217;t be bearish about <strong>every<\/strong> over-valued stock, right? Besides, my wife and I have discovered some incredible Thai restaurants using Yelp&#8230;<\/p>\n<p><center><br \/>\n<figure id=\"attachment_19687\" aria-describedby=\"caption-attachment-19687\" style=\"width: 540px\" class=\"wp-caption aligncenter\"><a href=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2013\/09\/130906_YELP.png\"><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2013\/09\/130906_YELP.png\" alt=\"Yelp rides a strong uptrend marked by ALL three of its major DMAs (20, 50, and 200)\" width=\"550\" height=\"375\" class=\"size-full wp-image-19687\" srcset=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2013\/09\/130906_YELP.png 550w, https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2013\/09\/130906_YELP-300x204.png 300w\" sizes=\"auto, (max-width: 550px) 100vw, 550px\" \/><\/a><figcaption id=\"caption-attachment-19687\" class=\"wp-caption-text\">Yelp rides a strong uptrend marked by ALL three of its major DMAs (20, 50, and 200)<\/figcaption><\/figure><br \/>\n<strong>Source for charts: <a href=\"http:\/\/www.freestockcharts.com\/\" target=\"_blank\">FreeStockCharts.com<\/a><\/strong><br \/>\n<\/center><\/p>\n<p>Full disclosure: short FB, long put spread GOOG, long YHOO, long Z puts, long MWW<\/p>\n<p>Be careful out there!<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Many internet-related stocks have been on fire lately. In many ways, the run-up has been about mobile, so it may not even be technically accurate to call this feature a valuation update on internet-related stocks. Regardless, the most notable change since the last update in mid-June is that the internet high-fliers have experienced significant run-ups &#8230; <a title=\"Valuation Update: Internet High-Fliers Experience Large Mark-Ups\" class=\"read-more\" href=\"https:\/\/drduru.com\/onetwentytwo\/2013\/09\/08\/valuation-update-internet-high-fliers-experience-large-mark-ups\/\">Read more<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[482,219,599,511,62,920],"tags":[495,398,1173,1190,1189,549,943,231,230,1181,1180,1185,752,1187,1186,923,924,956,957,1188,954,953,1597,50,1182,1183,919,918,1184,977,976,916,917],"class_list":["post-19679","post","type-post","status-publish","format-standard","hentry","category-breakout","category-high-tech","category-internet","category-support","category-technical-analysis","category-uptrend","tag-amazon-com","tag-amzn","tag-angi","tag-angies-list","tag-comscore","tag-facebook","tag-fb","tag-goog","tag-google","tag-milennial-media","tag-mm","tag-monster","tag-mww","tag-open","tag-opentable","tag-p","tag-pandora","tag-pcln","tag-priceline-com","tag-scor","tag-sfly","tag-shutterfly-com","tag-technical-analysis","tag-valuation","tag-velt","tag-yahoo-com","tag-yelp","tag-yelp-com","tag-yhoo","tag-z","tag-zillow","tag-znga","tag-zynga"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.4 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Valuation Update: Internet High-Fliers Experience Large Mark-Ups - ONE-TWENTY TWO: Trading Financial Markets<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/drduru.com\/onetwentytwo\/2013\/09\/08\/valuation-update-internet-high-fliers-experience-large-mark-ups\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Valuation Update: Internet High-Fliers Experience Large Mark-Ups - ONE-TWENTY TWO: Trading Financial Markets\" \/>\n<meta property=\"og:description\" content=\"Many internet-related stocks have been on fire lately. In many ways, the run-up has been about mobile, so it may not even be technically accurate to call this feature a valuation update on internet-related stocks. Regardless, the most notable change since the last update in mid-June is that the internet high-fliers have experienced significant run-ups ... 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In many ways, the run-up has been about mobile, so it may not even be technically accurate to call this feature a valuation update on internet-related stocks. Regardless, the most notable change since the last update in mid-June is that the internet high-fliers have experienced significant run-ups ... 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