Google, Facebook and the Social Media War

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

In a move to directly confront social media titan Facebook (NASDAQ: FB) and it's dominance of the market, Google (NASDAQ: GOOG) announced that users of Google+, it's rival social media service, will be able to log in into various sites using a new social log-in feature similar to Facebook's.

You know the system, or you should. You've likely seen it a thousand times on the web. Websites offer you the opportunity to log in via your Facebook username and so forth. Twitter does it, as well. Now, websites can allow users to do so with their Google+ accounts as well. Google is at some pains to point out the difference between the two services, painting Facebook's service as allowing a more out of control 'spam' style of sharing and so forth. But the long and the short of it is that it's the same basic functionality for most users.

So where does this take social media? It's another step in the coming war between Google and Facebook. The two have different product lines, and apparently the senior folks get along. But getting along isn't the same as cooperating or not competing. Compete they do, as well as other social media systems angling to come out of the coming struggle intact.

Facebook

Any discussion of social media right now must begin with Facebook. But I'm not convinced that'll be the case in five or 10 years. The service is very popular, but users are notoriously fickle and the company still hasn't figured out how to make money. Earnings per share sit at one lonely penny, and that's not going to cut it. The firm is trying to innovate its way to advertising dollars and that's good, but I think the jury is out on whether it can pull it off.

The stock is the most famous investment story of 2012. I won the hearts of several of my clients at the brokerage by talking them out of getting involved in the IPO, thank goodness. It opened at 38 and hasn't seen that level since. Heck, since July 13, 2012 it's only been over $30 for 11 days by my (too hasty) counting. Combine that initial drop with an P/E of 1,845.29 and you're looking at a stock that's way overbought and over-anticipated based on hopes and dreams. Facebook is the sort of story that teaches us that many people never learned the lessons of 1999.

Google

Google is a lot more than just social media, of course. It's search and shopping and email and blah blah blah. The main advantage that Google will have over Facebook is that the company actually makes money. I encourage all of you reading this to absorb that statement. Google makes money, Facebook doesn't. You'd think that wouldn't be hard. If Google wants to promote and expand Google+ it has the time, muscle and money to do so.

Most famously, Google shares exceeded $800 a few days ago. That's a hefty amount but not as impressive as it might be. A few splits might make it more affordable to the rank and file investor and create a little additional investment lubrication. Still, a reasonable P/E of 24.36 and share growth of 29% this year make Google still seem like a good bet. It won't be safe to count the company out of upcoming social media dominance if it wants it badly enough.

LinkedIn (NYSE: LNKD)

Sort of the forgotten network, LinkedIn offers a specialized form of social media aimed at promoting career prospects and advancement. It also provides a healthy dose of networking opportunity for those who want to know and be known. I actually find that useful in my day-to-day lives, even if it's not as entertaining as other, more chatty social media. By establishing a niche and doing it well the firm is showing signs of going someplace good.

LinkedIn shows some signs of being overbought with a P/E of 826.78. Still, the firm is presenting an EPS of 0.19, which exceeds Facebook's significantly. It's also seen significant share growth over the last year, going from $89.23 to $157.88. There are far worse technology firms in which to invest right now. You should give LinkedIn a good long look when deciding about social media investments.

Angie's List (NASDAQ: ANGI)

An interesting idea, Angie's List takes the ability to gossip about contractors and takes it global. It allows users to to share information and experiences with service providers in near 200 markets around the United States. I'm only surprised that someone didn't do it sooner.

Angie's List is an interesting study for an investor. Firm's brag about getting a high rating, and the stock has lately done well. Still, there's no way I could advise anyone to invest money into Angie's List that they weren't prepared to lose. The firm is still early in its maturation and has a terrible EPS of -0.92. The trend on the stock looks good, and I like the concept; but this is a stock only for your riskiest money.

Yelp (NYSE: YELP)

Another review site, Yelp allows users to share experiences and reviews about local businesses. Most prominent in its reviews of restaurant, users can share info about other types of businesses, too. Like Angie's List, Yelp is the neighborhood gossip taken to the national level. That might sound bad, but there's clearly a market for its services, and it's trying to fill it.

Even with some positive reviews on the firm's stock, I'm going to again put it in the 'risky money' only category. It's very early in the lifecycle for this dot-com to be considered any form of safe investment. Approaching the one year anniversary of it's IPO, the stock has gone up and down and is a few dollars off it's open. Combine that with a negative EPS and a -13.64% operating margin and you have a firm that might make it...but might not. Tread cautiously.

Social media is going to grow up sometime. It's got to happen. There's too much demand for it from the technologically dependent for it not to happen. But nothing, nowhere says it has to happen through one of the current players. Remember, at one point or another people worshipped Friendster, MySpace and AOL. Anyone else flinch when I mention those names? Yep, that's what I though. So, if you're looking to invest in social media make sure it's for reasons other than short-term gain.

Good luck!

Follow Nate on Twitter: @natewooley

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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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