Thursday, August 2, 2012

Not So Social After All - Facebook, Zynga, Groupon, Pandora (FB, ZNGA, GRPN, YELP, LNKD)

Misery loves company, so goes the cliché – and they are all certainly in it together. When they came in they were the proverbial new kids on the block, changing the way that people interacted, communicated, shared, found jobs, entertained themselves, got into relationships, shopped, ate drank – hell, they were even supposed to change the way people lived their lives.

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What they have done instead is left investors, who bought into their stories, a lot poorer and facing and holding onto stocks which now seem to be just so much junk paper.

Facebook Inc(NASDAQ:FB), Zynga Inc(NASDAQ:ZNGA), Groupon Inc(NASDAQ:GRPN), Pandora Media Inc(NYSE:P) – all companies which promised a lot but delivered little when the time came for them to lay down their cards.

It’s a bleak picture that emerges. We are bombarded with daily horror stories of stocks of these companies hitting new lows. But to recapitulate: No. 1 social network Facebook has lost 45 percent of its value since its debut in May at $38 a share;  game developer Zynga has wiped out three-fourths of its value since its IPO in December last year at $11 a share; discount coupon retailer Groupon, determined not to be left behind, debuted at 420 a share and has lost about 68 percent of it in nine months; Internet radio company Pandora, instead of providing music may induce some head-banging among investors, as it shares have fallen 41 percent from its IPO price of $16 a share.

So what went wrong exactly? Wall Street analysts, who set ambitious price targets for many of these stocks, have been left scratching their heads at the incredibly poor performance of the companies in recent quarters.

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Facebook’s story has been well documented as its very revenue model seems to be suspect with no clarity provided as to how the company is going to translate its 900-odd million subscribers – enough to populate several countries – into revenue generators. Until it can convince marketers that users’ clicks will translate into a return on equity for them, it will find it harder to convince investors that its business – which hinges totally on people like you and me writing one or two on what we ate for dinner or how we spent our holidays – has a sound practical base.

Zynga, which has hooked its fortune on to Facebook – a significant chunk of its rapidly dwindling revenues come from games played on the social network -  is following in its wake and looks direction-less at the moment. Chief Operating Officer, John Schappert being stripped of his powers has not helped matters and has only depressed investor sentiment.

Groupon looked as if it had a good business model but more recently it is looking sluggish and hardly any billings are coming in from North America and overseas leading analysts to question whether steep discount deals do work in a recessionary environment.

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Pandora has been hit by a slowing growth in streaming music as well as competition  from Spotify, which has become aggressive recently announcing a deal to bring its music widgets to Yahoo sites, which see a lot of traffic.

In the midst of all this gloom there are two bright shining sparks – business networking site Linkedin Corporation(NYSE:LNKD), whose shares have doubled from its IPO price of $45 a share and online review site Yelp, which is up 64 percent from debut at $15 a share.

LinkedIn is yet to announce its results later today after the market close but analysts and investors feel that it is a `serious’ network compared to its peers. Yelp Inc(NYSE:YELP), despite its losses has shown tangible evidence of expanding into new markets and adding to its user base and that has been appreciated by the Street.

For the companies in the social media space, it seems to be a story of overhyped valuations which were not backed by underlying revenues. The inherent business story is still intact, but the companies need to stop getting ahead of themselves and raising people’s expectations.

At the moment, it looks like a bunch of anti-social stocks.

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