Social network stocks are getting the antisocial treatment from tech investors. What was once the "next hot thing" is cooling off, and traders and early investors are heading en masse for the nearest exit.
Let's take a look at what has prompted the investment community to excommunicate Facebook, Groupon, and Zynga from their good graces.
Facebook
We all know the story by now: Facebook's IPO was the most-hyped stock since Google, a decade earlier. And the roadshow had more pomp and circumstance than Queen Elizabeth's Jubilee.
But Facebook was oversubscribed, overpriced, and overpromised, leaving it no room but to disappoint. There was massive insider selling and disgruntled public buying in a chaotic market environment that spurred more lawsuits than the tobacco industry (well... maybe).
Facebook shares have lost over 50 percent of their value, hitting a new low of $18.75 on Monday, August 20. But the public fallout began back on August 2, when Fidelity Investments announced that 16 of its 21 funds involved in Facebook were paring back their holdings.
Other top insider investors that have sold Facebook shares are early investor and board director Peter Thiel (who had sold 20.1 million shares as of today); Accel Partners (which sold 57.7 million shares); DST Global (45.7 million shares); Goldman Sachs (24.3 million shares); and the list goes on. In total, 241 million shares have been sold for a whopping $9.8 billion.
The bloodletting is sure to continue, as another 1.6 billion shares will come to market through November. And analysts are still skeptical that Facebook can monetize the mobile market, which brings into question whether the company's valuation is still too high.
Groupon
According to a recent Wall Street Journal report, Silicon Valley angel investor extraordinaire Marc Andreessen recently joined other prominent investors in unloading a large portion of their holdings in the troubled dealmaker's stock.
The investors have flat left Groupon for a number of reasons. First, the stock has run into a flood of copycats, including Google Offers, TravelZoo, DealOn, and Living Social. Second, the share price got slammed on an earnings miss for the second quarter, losing over 27 percent of its value. Third, analysts still have some trepidation about Groupon's accounting practices, which were deemed not transparent enough earlier this year. Also, Groupon's sales force is reportedly fleeing to other firms.
Zynga
Its one thing when insiders bail on a new issue, but when the CEO does, it's time to take cover. And that's what's happened at Zynga, where founder Mark Pincus has been accused of insider trading after selling shares in a secondary market offering in April. The secondary offering was priced around $12 a share when Pincus and other investors sold a chunk of their stake. Pincus was reported to have made $516 million. Shares now trade at around $3 a share.
Zygna is also currently being sued by Electronic Arts, claiming Zygna's game, The Ville, is a ripoff of EA's The Sims Social. Zynga also posted a miserable quarterly loss of $22.8 million. And Zynga was sued recently by an investor who alleges that shareholders were misled about the company's financial strength.
It is safe to say the honeymoon is over between investors and some of the more highly touted social IPOs. Still, while insiders still seem to make money and get out at the right time, the game continues to be heavily stacked against retail investors and general shareholders.
Bank of America-Merrill Lynch just downgraded Facebook, the stock is on fresh new lows @ $18.25. Maybe at this rate FB will be scooped up at $6 a share like AAPL.
FB or none of the Social networking firms are Debt Leveraged 100 times their Earnings/Income.
If you meant the Bankers;even there it depends.The European Banks are extremely Highly Debt Leveraged.American not so much.
On the other hand if you are talking about PE ratios then;
FB has not yet disclosed their first set of earnings;So I would be wary of saying what the PE ratio is [Groupon and Zynga are both trading at Negative PE Ratios].
But if you are looking for firms which are trading at PE Ratios in excess of 100;then look no further than Amazon.
Its trading at Mind-Boggling PE Ratios even today[Netflix was in the same position a few months back;since then it has crashed back to earth].
@Mashka: These are good means of evaluating a social network, however, what we are talking here is from an investor's point of view where they are looking to attach a monetary value to the social network. I don't think you can come up with a monetary value based on any of the means you mentioned.
It would be foolish of us to say it does'nt exist in Conventional Media today.
Boomers have no choice but to work longer,downsize and re-consider their investments(away from Stocks and into Bonds ) today.
I don't know how this trend is supposed to be beneficial for the Stockmarket;but then maybe we could do QE to Infinity and simply forget about Fundamentals and Logic forever!!!
Ashish, I agree, that article was heavily edited. One point I made was Corzine was asked back to Washington for the first time in a year, but not as a lawmaker but as a law breaker, but it never made it to print.
I agree that the boomer generation may indeed be in trouble. For anyone facing fixed income in the coming years, needs to pare back their risk substantially and not participate in IPOs.
The rich get richer and the rest don't. The boomer generation is in trouble, and I would guess the generations younger still, as well. Of course there's still the 1 percent who have lots of disposable income. But, the vast majority of folks are in deep trouble with not a lot to look forward to. Selling stock is the way to skim off some money quickly, and transfer money from gamblers into the pockets of the more clever in many cases.
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