Is Facebook Zucking the Air Out of These Internet Stocks?
Facebook Inc. recently revealed that it is targeting a market value of as much as $96 billion, offering shares at $28 to $35 each. The world’s largest social-networking site is scheduled to hold its initial public offering on May 18 and is set to become the most valuable U.S. technology company at the time of an IPO, far surpassing Google’s (NASDAQ:GOOG) $23 billion valuation in 2004.
At a market value of almost $100 billion, Facebook would already rival well-established internet companies such as Amazon.com Inc. (NASDAQ:AMZN). On Monday, Facebook co-founder Mark Zuckerberg launched a cross-country road show to pitch shares and build excitement. Hundreds of institutional investors standing in long lines to hear the pitch has been reported as the common scene on the roadshow tour. Although Facebook is lighting a spark in the IPO markets, it appears to be zucking the air out of other well-known internet companies.
While heavyweights such as Google and Amazon are still holding steady, the past three months have not been kind to the younger internet stocks. As investors prepare to free up funds for Facebook, which touts a user-base of over 900 million people, the companies listed below have become deflated.
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Zynga Inc. (NASDAQ:ZNGA): The social network game development company is perhaps the strongest derivative of Facebook. In a filing with the Securities and Exchange Commission earlier this year, Facebook said the FarmVille creator accounted for approximately 12 percent of the company’s revenue in 2011. However, over the past three months, shares of Zynga have dropped 43 percent. On Monday, shares fell 6.7 percent after Electronic Arts (NASDAQ:EA) chief executive John Riccitiello suggested that Zynga overpaid for its $180 million-plus purchase of OMGPOP.
Groupon Inc. (NASDAQ:GRPN): The deal-of-the-day internet company has more problems than just Facebook walking into the room. As we warned last June, Groupon could be the worst public investment ever. After once trading above $30, shares are currently near $10 and have plummeted almost 60 percent in the past three months. The company has been hit hard with SEC accounting inquiries and insiders dumping shares. Groupon even had to restate earnings results after finding “material weakness” in its accounting controls. This clearly violates our H= ‘Honest Accounting Governs the Company Books’ requirement in our CHEAT SHEET investing framework. Furthermore, Facebook is constantly trying to crack into the online deals space and may be successful at any moment.
Yelp Inc. (NYSE:YELP): The San-Francisco based social networking company provides user reviews on everything from restaurants to shopping. Although the company boasted an average of approximately 71 million monthly unique visitors in first-quarter of 2012, it fails in comparison to Facebook’s 500 million daily users. Shares of Yelp have declined more than 15 percent in the past three months. Last week, the company reported a wider loss of $9.83 million for the first-quarter, compared to a $2.75 million loss a year earlier. Yelp is having to spend more on marketing in order to expand its user base and attract more advertisers.
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