When I look at this week’s Stock of the Week, I admit I am intrigued by Facebook (NASDAQ:FB). The company has billions of users, although there is some question how they will monetize that base over time. The stock may someday end up a growth stock that’s in one our portfolios, but right now the social media business is fairly new and most do not have a long enough trading history for us to evaluate properly.
(The credit crisis and subsequent stock market decline delayed many IPOs by several years; we are just now seeing most social media companies get to market. Portfolio Grader needs at least a full year of fundamental data, and many of these stocks — including Facebook — simply do not qualify yet.)
Of the few companies that do have an adequate history, the early results for social media companies look pretty good. LinkedIn (NASDAQ:LNKD), which offers social media for business and networking purposes, is starting to gain traction in the tough economy. Wall Street has been far too pessimistic about the company’s ability to attract and monetize subscribers, and as a result LinkedIn has posted three consecutive blistering positive earnings surprises. The company lowered its revenue guidance a bit after its last earnings report earlier this month, but the results themselves beat expectation yet again. And just in the past week several analysts upgraded their quarterly and annual expectations for the company. The stock was upgraded to a “B” in Portfolio Grader back in February and remains a buy.
Angie’s List (NASDAQ:ANGI) offers a service that allows users to share their experiences with local professionals in industries such as home improvement, trade contractors, health care and automotive services. And once again, Wall Street has been too pessimistic about the company’s prospects so far, allowing the company to post four consecutive positive earnings surprises. Many analysts have been raising their estimates, which tells me Angie’s List could make it five in a row when the report earnings again in the first week of July. Right now the strong fundamental performance of the company results in a buy ranking from Portfolio Grader.
At the opposite end of the spectrum is the online social gaming company Zynga (NASDAQ:ZNGA). Although its games have seen strong usage at times (with hits like “Words With Friends,” it simply has not resulted in strong earnings or cash flow. Some analysts are hopeful that online poker legalization will help Zynga establish a strong path to growth, but that is well off into the future. The company is simply not executing right now, and the fundamentals are among the worst of the companies we follow. As a result, Portfolio Grader gives the stock an “F” ranking — a strong sell.
Social media may well turn into a powerhouse growth story, but right now there simply is not enough fundamental information or history to make an informed decision on most of these stocks. Stay tuned.
Louis Navellier is the editor of Blue Chip Growth.