Facebook and the Gold Rush
AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
So I was noodling around on my Facebook page and discovered something very interesting that I’ve not seen mentioned much about Facebook (NASDAQ: FB). One of my hundreds of Facebook friends had levered up her klout score, an index of how social she is in social media (mostly Facebook and Twitter), and had been contacted by a shoe company for endorsements! She‘s not a celebrity or politician or starlet. But that’s not the most interesting part, she announced her news with a link to a news story about how your klout or kred social media score will be counted for or against you in hiring, loans and even dating.
This trend is rapidly becoming better known among Main Street and Wall Street will have to sit up and take notice. Just like credit card miles and other marketing incentives soon there will be a social media gold rush as everyone tries to amp their scores and get paying gigs or sweet perks. But who made the big money during the Gold Rush? Why, it was the folks who sold the shovels.
If people are going to be able to monetize the time they spend noodling on Facebook, then chances are just by the law of averages some of them are going to click on a few ads. And companies are becoming more willing to spend on social media despite GM’s withdrawal from Facebook before its IPO.
Sure, analysts denigrate Facebook with its 78 P/E and of course it hasn’t even had its first earnings release scheduled for July 26. And if you haven’t heard of the fiasco that was the IPO, then you must truly be a Luddite and a shut-in. You would have heard of its plunge from $45.00 to $25.52 within days and subsequent mutterings about the valuation and how low can it go. And why did it buy Instagram before the IPO?
Still it wasn’t so long ago that LinkedIn Corporation (NYSE: LNKD) made its IPO debut, just a little more than 14 months, and it had a great opening day runup and within weeks dived more than 30%. It has dropped once again over the last few days, currently trading just below $100 as more news comes out about Facebook’s jobs board, premiering soon. LinkedIn may be a recommended way to find a job these days, but as a stock with a P/E of 681.71 (yikes!) and being threatened by competition from Monster Worldwide and about a thousand other privately held web sites, it’s a better bet to go with Facebook.
Will any of the other social media sites benefit from this social media ranking system? If Twitter goes public, it surely will. What about the stock most closely allied with Facebook? Zynga (NASDAQ: ZNGA) has continued to underwhelm investors as it has dropped from $15.91 in mid-March to a recent low of $4.78. Those holding Zynga on the Facebook IPO were hoping for some juice and were sorely disappointed when the stock plummeted, and I do mean plummeted, from around $9.00 to below $7.00 with two trading halts. It has continued to pursue its independence from Facebook, but a secondary offering and sentiment that it overpaid for Words with Friends has kept the stock beaten down. It’s a stretch at this point to think that increased monetization of Facebook will substantially improve the picture at Zynga. It has negative earnings and reports July 23. People play games, but if they’re looking for jobs or social ranking on Facebook they’ll have much less time to send requests to their facebook friends.
Despite youthful CEO Mark Zuckerburg’s declaration they’re not in it for the money, Facebook is the best of these three social media plays if you think your portfolio does need some exposure to social media. With its billions of users and plans to sell those ‘shovels’ to both advertisers and users and ramp up ways to sell the ‘axes ‘and ‘picks’ on the mobile platform this might be a surprisingly lucrative way to speculate on the social Gold Rush. And don’t forget to post an Instagram on facebook of you doing the Walter Brennan “I struck gold!” dance sometime.
leglamp has no positions in the stocks mentioned above. The Motley Fool owns shares of Facebook and LinkedIn. Motley Fool newsletter services recommend LinkedIn. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.