Facebook's Search, LinkedIn's Users and Social Media Companies

Nate is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Is it me, or is it becoming increasingly clear that Facebook (NASDAQ: FB) is an innovative company without real focus?

Social media has been immensely popular for years now. No doubt about it. But the jury is still out on which companies will be able to make it pay. Sure, Facebook has a ton of users, but will it make a lot of money? Will any of these firms make a lot of money?

Facebook recently announced a new search function it calls 'graph search'. It allows users to search throughout Facebook for specific people or things and see how they are rated by others. The example used by Mark Zuckerberg is 'Mexican restaurants in Palo Alto, CA'. Up popped a list of, sure enough, Mexican restaurants and how they've been mentioned and perceived by Facebook users.

Honestly, though, so what? Where's the value proposition in another search function when people aren't using Facebook for that sort of thing? Is this just another attempt by Facebook to move into another company's turf to see what happens? Where's the business plan?

I feel the same way about most social media stocks, actually. People like them and use them, but investing in them is risky. Is Facebook/LinkedIn/Yelp/Twitter truly the game changer that will break through? Or are they the next Friendster and will be gone in a few years as the herd moves on to the next big thing. Tough to say, but here's my take on some of them.

Facebook

Every time I turn around, Facebook is debuting some new feature. It gets a ton of attention because the media loves Facebook because Facebook brings readers. Fair enough. But for the life of me I can't figure out what all the attention is about. Yes, the service has signed up a lot of users. But has it really figured out how to turn those users into profits? No, not really.

Facebook has gotten this far on charisma and enthusiasm. Heck, the stock even climbed just in anticipation that the firm would announce some game breaker. Big build up, then after the announcement it dropped again. The big question for investors is when does the merry-go-round stop? We already know who's made some real money off Facebook stock: the insiders. According to the reports those folks pulled down $775 million from their shares since last May.

I haven't ever recommended Facebook to my clients and I won't start now. Not until the company shows me something users need and can't get somewhere else.

LinkedIn (NYSE: LNKD)

A smaller firm, LinkedIn has the reputation for being the place to be for business. It's a place about networking where networking can pay off. Trust me, in the business world it's all about who you know and who you can navigate towards. LinkedIn turns each industry into its own small town where relationships matter.

I'm higher on LinkedIn that I am on Facebook simply because of that focus. Whereas Facebook is trying to gather everyone, LinkedIn is specializing in one sort of client: the business networker. Every entrepreneur and salesman should be on it. Whether that's happening, who knows? But a recent announcement placed the firm's user base at 200 million. That's fewer than Facebook, but it probably includes fewer family pets, too.

There's still a lot of roller coaster in LinkedIn's stock price. Its 52-week range has gone from $62.34 to $125.50. That's a swing that you can be a little worried about. Still, the trend is generally up and you could do worse in the social media world. It would be nice if it paid a dividend, though.

Google+ (NASDAQ: GOOG)

Google+ is an enigma to me. I expected Google to leverage its search dominance into more of a social media presence. However, it just doesn't seem to be happening. The service seems to be in a rut of just being the place to go for people who don't like Facebook. That's not enough to sustain it. Still, though, it does have a lot of muscle to back it.

From a stock perspective, I refuse to make a call. It's impossible to pull apart the different parts of Google and figure out real numbers on which parts are working properly. I have a gmail account, and therefore I have a Google+ account. But I'm not giving it any advertising revenue because I've never used it. Plus, Google stock continues to cost a fortune per share. Invest in it if you have faith in the search engine. Stay away if you're really looking for social media investing.

There are others, of course -- Yelp (NYSE: YELP) seems a good idea at first glance. A way to share with all which restaurants waiters spilled your drink seems a good idea ... as long as you don't get sued. People consider Groupon (NASDAQ: GRPN) a social media site. I don't see it but I suppose it could go somewhere, though not if that class action lawsuit keeps building. For both of these, and Twitter when it finally goes public, only risk money you can afford to lose. None of these businesses are the sort of thing to make the basis of your portfolio.


Nate Wooley has no position in any stocks mentioned. The Motley Fool recommends Facebook, Google, and LinkedIn. The Motley Fool owns shares of Facebook, Google, and 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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