Stocks of social media companies led by Facebook
Inc(NASDAQ:FB), Zynga Inc(NASDAQ:ZNGA) and Groupon Inc(NASDAQ:GRPN) have been
taking a battering on Wall Street recently as uncertainty over their revenues
and increased spending have spooked investors into dumping their stocks.
It is a reprisal of the dotcom boom and
burst witnessed in 1999/2000 when internet stocks flattered only to deceive, so
to say.
Analysts said that part of the
disenchantment with these companies was due to the exalted valuations that
their stocks commanded during their stock market debuts and optimistic earnings
projects that were belied once their results were announced.
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Now that the initial euphoria has worn
off, investors in user-driven social media sites are starting to question their
revenue model and their long-term sustainability. The concern uppermost in
everybody's minds is whether consumer-fatigue will finally catch up with mostly
seen as a fad.
The biggest example of this was that
gorilla of social media, Facebook which has seen its shares erode by a third
since its hyped-up debut in May this year at an IPO price of $38 a share. Its
results for the June quarter showed that the company is facing challenges in
holding on to revenues as consumer preferences shift to mobile devices where
advertisers are still scanty.
Facebook's woes were also due partly to
its gaming partner Zynga, whose flagship Farmville game played on the social
networking site, showed a dip in subscriber base. Zynga, which has seen its
share prices eroding by nearly 70 percent has been struggling to retain
visibility on Facebook while new games have yet to gain traction.
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Daily discounted deals site Groupon,
which burst on to the scene holding out the promise of revolutionising
e-commerce, has seen its shares slide in nine months to as law $6.50 from its
IPO price of $20 a share.
Things are no better for music service
provider Pandora Media Inc(NYSE:P) whose shares have dropped to around $10 a
share from its June IPO price of $16.
The recent quarterly results of most of
these companies have come as a reality-check for analysts and investors, as
they cut forecasts and guided for lower earnings in the future.
Facebook did not give a forecast but
Zynga slashed its earnings forecast for the year to 4 to 9 cents a share from
23 to 29 cents a share. The stocks of both companies have tested all-time lows
this week.
However while it looks like a bloody
battlefield out there now, there are pockets of optimism in the sector.
LinkedIn Corp, which has a stronger business focus compared to many of its
peers is trading at about $100, above its IPO price of $45 a share in May last
year.
Local reviews firm Yelp Inc(NYSE:YELP), which
went public in March this year, is still holding above its IPO price of $15 a
share, though its shares have also seen a decline along with Facebook.
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"A lot of these companies are going
to make a quick buck and flame out," Reuters quoted Peter Schiff, chief
executive of Euro Pacific Capital as saying. "Just look at 10 years
ago."
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