by Tom Taulli | August 17, 2012 9:35 am
Back in the heydays of the 1990s, many companies added a “.com” to their names. It helped to boost the valuations — for a short period.
Of course, then “.com” became associated with “bubble,” and it took on a more negative connotation. And despite the fact that most of the hottest sites — the Googles (NASDAQ:GOOG) and eBays (NASDAQ:EBAY) of the world — don’t sport the “.com,” there still are some unabashed operators that still sport this appendage.
And just like the dot-com bubble left so many in its wake, investors should leave these three “.com” companies behind:
Jiayuan.com (NASDAQ:DATE), China’s largest online dating platform, surged around 10% in early-Friday trading, but still is well below its May 2011 IPO price of $11 per share.
As of the second quarter, Jiayuan.com was growing at a rapid clip. Revenues increased by 19% to $15.6 million, and it even made a profit of $2.9 million. The company also is getting traction with its mobile business; its app has logged about 4.6 million downloads to date.
The problem? Jiayuan.com faces tremendous competition from (among others) Baihe.com, Zhenai.com, 163.com, Ganji.com, 58.com, SINA Corp. (NASDAQ:SINA), Sohu.com (NASDAQ:SOHU) and Renren (NASDAQ:RENN). As a result, the company has to continue to spend aggressively on marketing.
While many of Jiayuan’s competitors are more diversified companies, DATE is fairly one-dimensional. And considering the nature of its business, churn is an issue, as members often will leave the site once they’ve found a significant other.
The company has shed 17% year-to-date despite Friday’s advances, yet still is trading at a high 36 times earnings.
A week ago, online diet operator eDiets.com (NASDAQ:DIET) signed an agreement to sell itself to As Seen On TV (PINK:ASTV) for 80 cents a share — roughly double what the micro-cap stock had been selling for.
However, the deal is non-binding. And in light of Thursday’s 40% plunge to 29 cents per share, the transaction might be in jeopardy, or the price tag could be renegotiated.
DIET is a tiny, $8 million stock whose revenues came to $5.6 million in the second quarter, and it’s extremely thinly traded — Thursday’s dip came on just 400 shares of volume! Considering the dangers of trading such thinly traded stocks, most investors would be wise to look elsewhere.
Local.com (NASDAQ:LOCM) provides online marketing services to local merchants. Business has been strong, with second-quarter revenues soaring 75% to $27.1 million. A key driver has been the mobile business — in May, the traffic came to 6.5 million monthly unique visitors.
However, Local.com is a small player in its space. Consider that companies like Google, Apple (NASDAQ:AAPL) and Yahoo! (NASDAQ:YHOO) have strong ad networks, and Facebook (NASDAQ:FB) is building its own.
Also, the local e-commerce market has been under pressure lately, as illustrated by poor results from operators like Groupon (NASDAQ:GRPN). The slowing economy is taking a toll, and it looks like it is getting more expensive to market to small businesses.
Local’s heyday came in early 2004 after it went public, then things went rapidly downhill. The stock saw some successes in 2010, but has been in decline since then.
If you do decide to trade any of these three companies, be careful — all are thinly traded (especially DIET, which averages just 15,000 shares a day), so make sure to set tight limit orders and stop-losses to protect yourself.
Tom Taulli runs the InvestorPlace blog IPOPlaybook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli. As of this writing, he did not own a position in any of the aforementioned securities.
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