This year has been a standout year for social stocks, including the likes of Facebook (FB) and LinkedIn (LNKD). The table below shows how these companies have fared both since going public (all within the past couple years), as well as how they’ve performed in 2013:
Unlike the situation with the 1990s’ dot-com boom, all of these operators have solid revenue models. It’s not just about “getting lots of eyeballs.”
Helping these stocks out is how mainstream computing technology has become. We’re not just talking computers anymore, but tablets and smartphones, and that’s where the future lies.
Mobile has become a huge driver for social companies, and it looks as if the opportunity is still in its early stages. According to a report from Gartner, the ad spending in this market is expected to surge from $9.6 billion in 2012 to $24.5 billion in 2016.
And if you’ve listened to some of the recent earnings calls from social companies, you’d think mobile was the only thing that mattered.
- Since revamping its Apple (AAPL) iOS and Google (GOOG) Android apps in April, LNKD has seen a 40% lift in mobile page engagement; roughly 33% of unique visitors in Q2 came from mobile, versus 21% a year ago.
- In Yelp’s latest quarter, the core app and mobile website accounted for 59% of all searches.
- And in Trulia’s second quarter, mobile monthly unique users doubled to 13 million, and in Trulia’s top 100 metro areas, more than half their revenues came from mobile.
This doesn’t mean mobile is the only thing that matters. Just look at Zynga (ZNGA), which has mobile games like Draw Something, Words With Friends and Zynga Poker … yet the company has lost nearly 45% of its daily active users in the past year, and the stock is down 70% since its IPO in late 2011.
Except for rare cases like Instagram or Snapchat, a successful social company also needs to have a robust web presence.
Still, the main priority should be on mobile. This approach has become known as “mobile first,” which means an app needs to be built with the focus of leveraging the unique features of mobile device platforms like the use of gestures, location and so on.
So what are investors to do? Well, in light of the big run-up in the stocks — thanks to a lot of fast-money hedge funds aggressively piling in — the valuations are certainly robust.
And even with the strong growth in mobile, the growth path will likely be uneven. For example, competition from startups will be a big factor over the next couple years; it’s a natural part of the tech lifecycle.
So if you’re looking to invest in social stocks, think of them as fairly risky assets. Yes, they can generate huge returns, but the losses also have the potential to be substantial.
Patience is key. Social stocks are volatile, and traders with good control over their trigger fingers often can find better prices among the numerous dips.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.