Be Anti-Social

Written by GSCR Staff   
Monday, 30 July 2012 09:39

I have attached a link to a very cool piece on cnbc.com. recently.  It notes that investors have lost a combined $39 billion in social media stocks since their respective IPO debuts.  Damn that is a big number. The group includes Facebook (NASDAQ – FB), Pandora (NYSE – P), Groupon (NASDAQ – GRPN) and Zynga (NASDAQ – ZNGA).  http://www.cnbc.com/id/48340363

For the record, we panned Groupon from the outset, made the right calls on ZNGA as trades, but thought FB would do well until the scandal regarding the IPO process was leaked.  P, of which we are real fans, has remained down 10% or so since we recommended it in our The 30-30 Report.  (We have since removed it.)

While these stocks may be totally out of favor right now, that does not mean they will be in perpetual purgatory.   What will it take?  It might take another analyst who is bearish to turn bullish, or vice-versa.  Valuations probably have to continue to slip and one of these guys needs to reach an inflection point of sorts to pull it off.  FB and P are the likely firms to come back, in our view. That might help ZNGA, but only to a degree.

That is not the key issue here, though.  The real question is what happens to other social media stocks, like Yelp (NASDAQ – YELP), Angie’s List (NASDAQ – ANGI), LinkedIn (NASDAQ – LKND), and Zillow (NYSE – Z)?  All of them trade 5-10x FY12E revenue and are at risk in our view---except for LNKD.  Although it also trades at a high revenue multiple, unless it stumbles financially, it should weather storms due to the fact that at least they are making money, and that pie is growing. The valuation is still high for our tastes, but you can’t knock them for earning an expected $71M this year and nearly double that next year.

The best way to play these social media stocks is to be well, anti-social.

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