The start of the social IPO trend came in late May 2011 when LinkedIn (NYSE:LNKD) sold shares at $45 each. As of now, they’re fetching about $106. Unfortunately, this performance turned out to be mostly an outlier.
Many other social IPOs — like Facebook (NASDAQ:FB), Groupon (NASDAQ:GRPN) and Zynga (NASDAQ:ZNGA) — have suffered huge losses.
But might this be an opportunity to get some bargains? To see, let’s take a look at each:
Zynga
2012 Return: -68%
The company’s second-quarter report was an absolute disaster. The full-year revenue guidance was $1.15 billion to $1.23 billion, down from $1.43 billion to $1.5 billion. It also forecast earnings at only 4 cents to 9 cents per share, while Wall Street estimates called for 29 cents per share.
Zynga pointed out that it was getting squeezed on two fronts. One was on the Facebook platform, where there were declines in traffic for game franchises like FarmVille, CityVille and CastleVille. At the same time, Zynga has been scrambling to catch up with mobile games. Unfortunately, its $180 million purchase of OMGPOP — the creator of Draw Something — looks like a dud.
Then again, Zynga’s valuation is much more attractive now. If you exclude the $1.6 billion cash hoard, the company trades at about 1 times bookings, which is fairly reasonable.
Actually, Zynga may have intentionally been conservative on its guidance to give itself some leeway going forward. Thus, for shareholders looking for a trade, the stock could provide some upside. Consider that over the past few weeks, Zynga’s games have been showing improvements in daily active users (according to stats from AppData.com).
Facebook
2012 Return: -45%
For the long term, Facebook’s prospects look bright. The company has nearly 1 billion users, and half of them access the service with mobile devices.
The issue? Monetization. Facebook has been slow to launch new ad systems, especially for its mobile business. As a result, growth will likely be slow for the next couple quarters.
So, with a price-to-earnings ratio at a hefty 72s, the stock could face more downside. Keep in mind that a variety of lock-ups will soon expire. The first one will come on Aug. 15, which will include 268 million shares. Then October has a second expiration for 249 million. With an influx of supply on the market, the stock price will likely feel more pressure.
But the good news is that Facebook is starting to get traction with its new advertising strategies, such as with “sponsored stories.” In June, they were getting about $1 million in revenues per day — and this was on an experimental basis.
Groupon
2012 Return: -66%
For the first quarter, Groupon showed that its growth story is still intact. Revenues spiked by 90% to $559.3 million, which was well above the $530 million Wall Street estimate. The company was even able to post a profit of 2 cents per share (at least when adjusted for certain one-time items). Cash flows came to $70.6 million.
No doubt, Groupon is the dominant player in the daily-deals business. It has about 36.9 million active customers and over 100,000 merchants.
Yet there are some lingering issues. For example, will customers get annoyed with the deluge of emails? And will merchants push back and try to get better arrangements? Oh, and what about competition from operators like Amazon (NASDAQ:AMZN)?
Keep in mind that to improve profitability, Groupon has been cutting back on marketing. Might this reduce the growth rate for revenues?
All in all, there’s lots of uncertainty right now. And with the company ready to report its second-quarter results on Monday, it’s probably best to hold off on the stock for now.
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.
A long-time follower of the IPO scene, back in 1999 Tom started one of the first sites in the space called WebIPO. It was a place where investors got research as well as access to deals for the dot-com boom. Tom also wrote the top-selling book, Investing in IPOs. In it, he covers all the aspects of analyzing an IPO, such as reading the prospectus, detecting the risk factors and understanding some of the arcane regulations. But don’t worry — if that process is too intimidating for you, thankfully Tom will do the legwork for you right here in the IPO Playbook blog.
Comments are currently unavailable. Please check back soon.