In case you missed it, Saturday was officially “Social Media Day.” I’m not sure how you celebrate such an event, except to do what many people do — that is post status updates on Facebook (NASDAQ:FB) and continue to Tweet.
Yet for investors, the day is a time to reflect. What’s going on in the space? Is it worth getting some exposure?
All in all, the opportunity for social stocks has been mostly a bust. To see, let’s take a look at some of the high-profile social stocks:
When it comes to social gaming, Zynga (NASDAQ:ZNGA) is the dominant company. It is also making inroads with mobile offerings.
But the problem is that Zynga has had a dry spell. Last week, the company launched some new titles but they looked prosaic. For example, The Ville title is essentially a knock-off of Electronic Arts’ (NASDAQ:EA) The Sims Online.
As I mentioned in a recent piece, Zynga should move aggressively into the online gambling industry. But unfortunately, there appears to be little momentum on this front.
Facebook was supposed to be the deal that would supercharge the social stocks. Of course, the IPO was a huge disappointment. If anything, it has cast doubt on the market potential for social media.
This is especially the case for mobile platforms. All in all, the industry is in the experimental phase — so it will take time to get sufficient monetization.
In fact, Wall Street analysts also have doubts. The consensus price target for Facebook is about $38, while the current stock price, it is $30.77.
On the other hand, LinkedIn (NYSE:LNKD) has bucked the trend. Since its IPO in May 2011, the shares are up a sizzling 128%.
Then again, the company is not a consumer-focused play. Instead, LinkedIn has built a strong business by selling recruiting services to corporations. Advertising is only a small part of the model.
LinkedIn also has some big advantages, such as its brand and thriving user base (there are over 161 million members across 200 countries and territories).
Groupon (NASDAQ:GRPN) continues to grow at a rapid rate. In the latest quarter, revenues spiked by 90% to $559.3 million. The company even posted positive cash flows of $70.6 million.
But there are concerns that the momentum will slow down. For example, Susquehanna Financial Group analyst Herman Leung put out a negative report today on Groupon. He cut his 12-month price target from $15 to $12. He has concerns about the marketing expenditures as well as the move into retail goods (they may be artificially inflating revenues).
All in all, Wall Street is taking note. In today’s trading, the shares of Groupon are down 9% to $9.64.
While the shares of the social stocks are much more attractive, this is not enough to jump in. The problem is that many of the companies are in transition — such as to mobile — and are likely to see deceleration in growth. This will be a turn-off for investors.
True, LinkedIn seems to be immune, but the company is still trading at a hefty valuation. The multiple is 18 times sales.
So for now, it is best to avoid the social-stock sector.
Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of the upcoming book How to Create the Next Facebook: Seeing Your Startup Through, from Idea to IPO. Follow him on Twitter at @ttaulli or reach him via email. As of this writing, he did not own a position in any of the aforementioned securities.