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August 02, 2012 at 02:48 PM
For a while, it looked as if social media stocks were going to be the next hot buy, the first real wave of equities that got not just hardcore investors but the general public excited about them. This period ended about the time Facebook had its IPO – the most anticipated public stock offering in a decade, and the biggest in terms of dollar amount that America had ever seen – back in May.
See also: America’s 10 Biggest IPOs
Since then, it’s been pretty much all downhill for social-media stocks. In a sense, they seem to be creating a miniature version of the Internet stock bubble, which ran for several years before investors figured out that companies with little or no earnings were not worth paying a premium price for. The Internet has grown ever more significant in people’s lives since then, but companies working that space have come to be far more rationally valued.
Similarly, social media as a phenomenon shows no signs of fading – but the stock frenzy sure does. Here’s what’s happened to the most prominent social media stocks this year:
Facebook launched its much ballyhooed IPO on May 18, just days after increasing the initial price from $34 to $38 a share. But the problems started almost immediately: The stock debuted on the Nasdaq exchange a half hour late due to technical problems, and other technical glitches hampered traders all day long. Still, at the end of the day, Facebook boasted a larger market cap than McDonald’s or Disney.
Ever since then, the news has been disappointing. Last week’s earnings report provided the latest down moment: Sales grew at 32 percent in the second quarter, down from 45 percent in the first quarter. Many companies provide guidance for future sales or profit growth when they report earnings, but Facebook declined to do that, which didn’t help investor confidence. Even though it did edge past its earnings estimate, reporting $1.18 billion as opposed to the consensus figure of $1.16 billion, on the day it reported earnings, Facebook dropped 6.2 percent.
The stock has fallen in an orderly fashion, from that first day’s close just over $38 all the way down to around $20 now. And with Facebook’s lockup period ending this month, insiders are expected to dump as many as 200 million additional shares onto the market, which could depress the price even further.
Google obviously thinks Facebook’s dominance in the social-media space is looking vulnerable. Just this week, Google+, the search giant’s social-media arm, acquired a social advertising firm called Wildfire Interactive, which had claimed Facebook as its primary client. To stick its thumb in Facebook’s eye even further, Google’s new subsidiary is where Arielle Zuckerberg — Mark Zuckerberg’s little sister — works.
Zynga
Zynga has been sort of a sister company to Facebook, providing ridiculously addictive games like FarmVille for the site’s users. Zynga went public back in December of 2011, but instead of the hoped-for first-day pop, the shares came out and promptly dropped 5 percent. It might have been worse, except that the stock’s underwriters put in a stabilizing bid to shore up the price.
