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Facebook and the Social Stock Exodus

Several social media names are waning as Facebook IPO nears


When Facebook filed for its IPO in early February, there was a massive rally in social stocks — in fact, even the general markets also got a lift. But over the past month or so, things have calmed down.

Why? One reason might be that as the Facebook IPO gets closer — which could hit the markets in mid-May — lots of investors are planning on moving money into the stock, which could mean less demand for the other social operators.

Here’s a chart of several big social stocks for the past month:

Angie’s List
-6% -15% -36% -36% -24% -15%

True, the upcoming Facebook IPO is not the only factor for these declines.

Groupon had to restate its earnings, and CEO Andrew Mason has lost a lot of credibility on Wall Street — in his most recent antic, he drank beer at an employee meeting, then stressed that the company needed to “grow up.” Other companies, like Pandora (NYSE:P) and Zynga (NASDAQ:ZNGA), have been showing weakness in terms of their growth rates. They also have struggled to monetize their mobile businesses.

And one social stock — LinkedIn (NYSE:LNKD) — was even up 6% for the month. Then again, the company has consistently beat Wall Street expectations and has several revenue streams. More importantly, the company has essentially become the “Facebook” of business, which probably has been enough to keep up the excitement level of IPO investors.

So after the Facebook IPO, might investors warm up to the rest of the social stocks?

Well, they could see a jump just because of the excitement over the offering, but even then, it probably will be temporary. The fact remains that many social media companies are struggling to keep up growth — and for some, to even reach profitability. The likely result is that many will lag while investors focus on the cream of the crop, like Facebook and LinkedIn.

Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “The Complete M&A Handbook”, “All About Short Selling” and “All About Commodities.” 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.

Article printed from InvestorPlace Media,

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