As Sector Stalls, Social Media ETF Takes Its Lumps

As Sector Stalls, Social Media ETF Takes Its Lumps The evolution of the social media industry has been impressive, its impact on everyday life and business palpable, but those potential catalysts have not resulted in noteworthy returns for investors in publicly traded social media firms. As the much ballyhooed social media sector struggles to impress analysts and investors, the impact on at least one ETF is becoming clear. The Global X Social Media Index ETF SOCL, now home to $17.2 million in assets under management, was the first social media ETF to come to market. Upon debut, the Global X Social Media Index ETF was criticized by some for being too much of a niche product and praised by others for being the first ETF to give investors to what was believed to be a rapidly growing sector. Regardless of what interpretation is deemed accurate, one thing about SOCL became immediately clear: A large portion its near-term fortunes were arguably tied to the success of the Facebook FB IPO. As the world now knows, "success" and "Facebook IPO" probably do not belong in the same sentence and it is the struggles of Facebook shares that in large part explain SOCL's 16.7 percent slide in the last three months. SOCL features the largest allocation to the social media giant of any ETF at 8.2 percent. That is down from an initial weight of 8.8 percent to Facebook in late May. Facebook's flubbed IPO is an old problem, but there are new issues that could make the next 24 to 48 hours the most critical of SOCL's young life span. One of Wednesday's biggest after-hours stories was the plunge of Zynga ZNGA, another social media darling. The maker of the CityVille and Mob Wars games played on Facebook tanked after reporting a second-quarter profit of one cent per share on revenue of $332 million. Analysts expected six cents on revenue of $344.1 million. Zynga slashed its full-year profit guidance to four cents to nine cents per share from 23 cents to 29 cents. Analysts were expecting 27 cents a share. The stock is down 34 percent in the after-hours session, not good news for SOCL considering Zynga is the ETF's thirteenth-largest holding with a weight of almost 3.3 percent. Zynga's tumble has pulled Facebook down almost 7.4 percent. In other words, before Thursday's opening bell even rings and before Facebook delivers its first set of quarterly results as a public company, 11.5 percnet of SOCL's weight is being taken to the woodshed. SOCL's problems do not end there, because the social media sector's problems do not end with Zynga and its Wednesday evening dive. When one stock in a sector sneezes, sometimes the others catch a cold. When one social media stock sneezes, a plague seems to spread to nearly the entire sector. In Wednesday's after-hours session, Renren RENN, the Facebook of China, slid 7.5 percent. Groupon GRPN fell 4.1 percent and Pandora P lost 2.5 percent. Those three stocks combine for almost nine percent of SOCL's weight. In fairness, LinkedIn LNKD, SOCL's largest holding, and Google GOOG, another top-10 holding in the ETF, have not been adversely impacted by the social media slide. A combined weight of almost 17 percent to LinkedIn and Google should insulate SOCL from big declines. However, until Facebook, Zynga and friends prove to the world social media is a legitimate investment thesis, SOCL is likely to be greeted with a wait-and-see approach by investors. For more on social media ETFs, click here.