The Intangibles
Mary is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Facebook's (NASDAQ: FB) IPO has not quite been the success story its loyal followers must have imagined. This social media empire has fallen nearly 10% since its inception, remaining below its initial IPO price. This was a much anticipated IPO, and it has fizzled out before it even gained any traction. Demand was so weak, in fact, that the IPO's underwriters had to step in and support the shares. More than 35 million shares of this global network have been traded.
The week leading up to the IPO indicated strong demand, with Facebook raising both the price and the share count of its offering. However, when Monday morning rolled around, Richard Greenfield of BTIG Research gave the shares a neutral rating. He found the company's current value unappealing given signs of slowing revenue growth and problems with its core advertising business. He compared Facebook to a utility such as email as opposed to a social media network.
Facebook's weak start had a slowing impact on other stocks in the social media sphere such as Zynga (NASDAQ: ZNGA), Yelp (NYSE: YELP), and LinkedIn (NYSE: LNKD). Zynga is the world's leading provider of social game services. The company makes its games available on a multitude of global platforms, including Facebook. Zynga fell more than 7% on Monday following Facebook's lackluster IPO. Yelp's purpose is to connect people with businesses. They allow users to write and read reviews on local businesses. Yelp is also heavily integrated with Facebook. Yelp fell more than 5% on Monday.
LinkedIn is the social networking site for professionals. Similar to Facebook, one can set up a profile and connect with friends and family. As opposed to Zynga and Yelp, LinkedIn has no direct connection to Facebook. It touts itself as being geared more toward the professional for networking purposes. LinkedIn's revenues have more than doubled over the same quarter for the year prior for the past seven straight quarters. However, when Facebook slumped following the IPO, LinkedIn tumbled approximately 5%.
There is always the possibility that once the 'new' wears off that Facebook will find its footing and begin its rise. This is a stock whose product is intangible so it becomes increasingly difficult to judge its value. Was Facebook already too big at the time of its IPO? Part of Facebook's appeal is that it is universal. Grandparents set up Facebook profiles to get updates from their grandchildren. Teachers and professionals have profiles. Does this translate into zero growth potential? Will advertising revenue continue to keep this community afloat? Facebook is not only its own social media network, but is heavily integrated with so many others. One has to consider the collateral damage if Facebook continues to fall. Independents such as LinkedIn should be safe. Zynga and Yelp, however, might need to regroup.
MaryPosey has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. 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.
