Priced....
88.77 a share, + up 43.10 dollars
Social Networking: Why the Game Could Be Over for Individual Investors
Since the ‘Tech Bubble Implosion’ that occurred nearly a decade ago investors have taken a more rational approach to valuing tech IPOs. After the various settlements between Wall Street firms and regulators, they too have shown better judgment in the companies that they bring public. However, one has to seriously question the overall quality and ultimately the valuations currently being assigned social networking websites as it now appears that there is an armada ready to set sail.
In today’s world where the supposed ‘smart money’ moves in and out snatching quick and easy gains, would it be far-fetched to imagine that the VCs, hedge funds and large, sophisticated investors have already grabbed the low-hanging fruit? Or even nearly all of the fruit?
The Google (GOOG) IPO was special, it was a market leader, which had been incubated until the business model took shape and the company could more than stand on its own. That IPO really jump started a web search investing frenzy, both in the publicly traded issues and the privately traded ones as well. Facebook’s IPO, when it happens, will be special too. Facebook is to the social networking space what Google was to the search space…but what about the rest?
Individual investors need to pay careful attention because the game could very well be over before it has started. Look no further than Renren (RENN), China’s supposed Facebook equivalent (if there were such a thing), and Friendfiender, (FFN) the publisher of Penthouse magazine and owner of various adult websites including some involving social networking. Both firms appear to have been brought to market to satisfy demand from investors for social networking exposure. The stock market does in fact operate on a supply/demand basis even with IPOs. Both stocks have done poorly to put it kindly. Worse still, serious accounting concerns have arisen over Renren’s books.
Linked (LNKD) In is unquestionably the market leader in professional networking on the web. The company has a business model that works and both the top and bottom lines should continue to grow, based on the information the company has made available and independent analysis. Reports indicate that the IPO was oversubscribed in a big way early and since then the IPO price has steadily risen. We now know that it will be priced at $45/share, the top of the upward revision announced earlier.
This is all great and good for the company, its founders, employees and early investors, but how much upside is left for those buying as the stock begins trading on the NYSE? It is hard to perceive a situation where LinkedIn pulls a Google, especially when one considers the extreme valuations achieved by these social networking companies in private transactions [both on the private exchanges as well as the private deals such as Microsoft’s (MSFT) purchase of a stake in Facebook].
It is ironic to think that although investors are waiting for social networking players to bulk up, have solid revenues and either be close to breakeven or already earning money (of course this was not the case with the previous two) they could once again get left holding the bag. The possibility exists that many of the gains have already been had in the sector before individual investors were given the chance to sink their teeth into the fruit of the social networking industry. With the likes of Facebook, Twitter and even Groupon, among others, sitting on the sidelines and anticipated to come public in the near future, it sure does look like everyone is cashing in. The question for investors is whether it is at the top or not.
