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ERROR: type should be string, got "https://www.barrons.com/articles/twitter-yelp-linkedin-implode-as-disappointed-investors-flee-1430527154\nTechnology Trader\nTwitter, Yelp, LinkedIn Implode as Disappointed Investors Flee\nTiernan Ray\nIt was deja vu all over again when things turned ugly in the investor romance with social-media stocks last week. A string of disappointing earnings results shook shares of three of the most prominent Internet darlings— Twitter, Yelp, and LinkedIn —a consequence of inflated stock prices and an industry very much in transition.\nSound familiar? It should. It’s the same problem of the dot-com era—namely, investors playing public venture capitalists. The three were hit hard: Twitter (TWTR) ended the week down 25.5% at $37.84; Yelp (YELP), down 21.4% at $39.76; and LinkedIn (LNKD), also down 21.4% at $205.20.\nIt’s unlikely we’ll see anything like the dot-com bust of 2000, which involved a broad swath of companies across different industries. There are only a handful of current flameouts today. More likely this is a shakeout that favors top dogs such as Facebook (ticker: FB) and Google (GOOGL).\nThen as now, too much online ad inventory pushed advertising prices down. Another, more recent contributing factor is the rise of programmatic ad-buying using software that sifts and sorts data to make buying decisions. That technology breaks the relationship between ad agencies and Websites like Twitter, and undermines the Web giants’ pricing power.\nThat’s the surface explanation. The deeper reality is that investors have bid up the three names to prices that left no margin for error. Even after the selloff, Twitter trades at 114 times this year’s projected earnings, LinkedIn 97 times, and Yelp an insane 319 times.\nInclude the cost of stock options and restricted stock the three companies have issued to employees, and the stocks look even less attractive: Yelp’s profits would be even lower; Twitter and LinkedIn would both be losing money.\nAll three names will likely have further to fall as they figure their way out of the mess. There may conversely be upside for Facebook and Google, whose supremacy in ad sales looks brighter after last week’s implosions.\nONE BY ONE, THE ’NET DARLINGS ’fessed up to programmatic ad buying’s impact. Twitter’s revenue shortfall of 4.4% was its first miss ever after beating estimates by an average of 6.7% in the five quarters since its November 2013 initial public offering.\nYelp suffered its first revenue miss as well—a 1.3% shortfall—since its March 2012 IPO, after beating expectations by an average of 3.6% in the prior quarters. LinkedIn beat revenue expectations by a fraction of a percent, but in 2012, a year after going public, the upside looked a lot healthier, exceeding estimates by an average of 9% a quarter.\nYelp said brand ad revenue fell 11% in part because of “industry headwinds related to the shift to programmatic advertising,” while LinkedIn noted “the ongoing shift of programmatic advertising caused a drop in demand for our traditional display products.” Twitter chief financial officer Anthony Noto, speaking more obliquely, said results were hurt in part by some advertisers backing off from some ads because prices in auctions rose too high.\nPROGRAMMATIC BUYING disintermediates traditional buying and selling of ads, observes Kevin Landis, chief executive of the Firsthand Technology Value fund. Landis is a smart fellow. He sold most of his fund’s holdings in Twitter at a profit before the latest debacle. Now he’s put his money into two private companies that make programmatic ads possible, called Tapad and Turn, an astute pivot toward the future. “It’s rather like the world of online travel,” says Landis of programmatic ads, “where you, the advertiser, increasingly go around the travel agent—or in this case the ad agency.”\nLarge brands such as Kraft are able to use software tools to place bids for ads across a vast spectrum of properties, rather than have agencies negotiate with sales teams at Twitter or others. That disintermediation reduces the importance of any one property.\nStill, Facebook and Google remain must-buys, says Landis, though everyone else in the ’Net world, including Twitter, are only possible ad outlets in what he calls a “big, messy cloud.” Automated bidding, he quips, is the equivalent of “high-frequency ad buying.”\nExtending that analogy, analyst Robert Peck of SunTrust Robinson Humphrey says, “I liken it to what happened on Wall Street,” with automated-trading systems. “You had prices and commissions come down across the Street,” and traditional floor brokers went the way of the buggy whip.\n“Programmatic is just an automated way to find the advertising inventory you’re looking for, and it reduces the prominence of the middle man [the agency], making ads cheaper and inventory more commoditized,” he adds.\nPeck, who had the foresight to downgrade Twitter last Monday, just a day before the bloodbath, sees two ways for the companies to adjust. Either they fine-tune their tools to adapt to programmatic buying, or they develop more premium content for which advertisers will pay up.\nThe first option involves potentially costly acquisitions. On Tuesday, the same night Twitter imploded, the company announced it was buying start-up TellApart. Twitter didn’t disclose until the following day that it had paid a whopping $533 million in stock to do so.\nPublic companies that could be targets include Rubicon Project (RUBI) and Rocket Fuel (FUEL). Private companies include Landis’ two, Tapad and Turn, and a third, Drawbridge.\nDeveloping premium content is risky, notes Peck. “It’s rather like becoming a movie studio. You’re investing in content and hoping it sells.”\nThe challenges are probably smallest for LinkedIn, opines Peck, while Yelp and Twitter may need several quarters to adjust their businesses.\nIn the meantime, investors wonder how such smart teams came to such ugly turns, and why they gave so little warning that waters were rising. Other firms had already suffered from programmatic ads, including Yahoo! (YHOO), which saw prices decline. While failing to anticipate the shift, Twitter and others left investors in the dark in return for pricy currency they got to use for acquisitions. The day after Twitter’s debacle, many particularly wondered why Noto, a former Wall Street stock analyst, hadn’t warned investors that results were going to fall short, the way established tech outfits such as Intel (INTC) will warn.\nInvestors may eventually return, and give the trio another chance. But buyer beware: Your public venture money will likely still be party to a bad romance.\nTIERNAN RAY can be reached at tiernan.ray@barrons.com, http://blogs.barrons.com/techtraderdaily or www.twitter.com/barronstechblog\nIt was deja vu all over again when things turned ugly in the investor romance with social-media stocks last week."