Seeking Alpha
Recommended for you:
, Optionity (1 click)
Long/short equity, value, options trading, options investing
Profile| Send Message|
( followers)  

The Nasdaq has logged a solid gain of 5.76% YTD as of February 8, 2013; however, it is much less impressive compared to the following 5 social network companies: Facebook Inc. (NASDAQ:FB), Groupon Inc. (NASDAQ:GRPN), Yelp Inc. (NYSE:YELP), LinkedIn Corporation (NYSE:LNKD), and Zynga (NASDAQ:ZNGA). Below is the chart showing YTD performance for 5 social network companies, as compared to the Nasdaq index.

(click to enlarge)

Source: Google Finance

More Mobile

In 2012, Facebook stated

we anticipate that the rate of growth in mobile usage will exceed the growth in usage through personal computers for the foreseeable future and that the usage through personal computers may be flat or continue to decline in certain markets, including key developed markets such as the US, in part due to our focus on developing mobile products to encourage mobile usage of Facebook.

This means that the future of social media will shift toward the networks that make engagement on the go easy. Traditional media must provide better mobile experiences and ensure mobile interfaces are streamlined and fast-loading. More revenue models also need to be established on the mobile platforms.

Growing Social Network Users

As reported by eMarkerter.com, the growth rates for social network users are expected to be 16.0% for 2013 and 11.6% for 2014 (4.1% for the U.S. for 2013 and 4.0% for 2014). Much faster growth rates are expected in Middle East & Africa and the Asia-Pacific regions. According to McKinsey Global Institute's report, social technologies could improve the productivity of interaction workers by 20-25%, where the searching and gathering information activities increase the most with 30-35% productivity improvement. As quoted from the report,

Unlocking value and productivity through social technologies, explores their potential economic impact by examining their current usage and evolving application in four commercial sectors: consumer packaged goods, retail financial services, advanced manufacturing, and professional services. These technologies, which create value by improving productivity across the value chain, could potentially contribute $900 billion to $1.3 trillion in annual value across the four sectors.

Suffering in 2012 and Rebounding in 2013, LNKD is a Rare Story

For 2012, while Nasdaq had gained 15.31%, FB had lost 29.94% and YELP had given up 23.30%, respectively, since their IPOs in 2012. ZNGA and GRPN had lost 74.87% and 78.82% in value, respectively. LNKD was the only one outperforming the Nasdaq with an 80% gain, as seen from the chart below.

(click to enlarge)

Source: Google Finance

ZNGA has been rebounding aggressively after its latest Q4 2013 earnings release. ZNGA reported Q4 profit and sales that surpassed analysts' estimates as it cut costs faster than demand fell for virtual goods. LNKD continued its gain after the company reported Q4 profit and sales beating analysts' estimates, with the help of increased membership.

Key Stats and Valuation Comparison

FB

GRPN

YELP

LNKD

ZNGA

Closing Price, February 8, 2013

$28.55

$5.43

$21.85

$150.48

$3.43

Market Cap

$68B

$3.56B

$1.38B

$16.24B

$2.65

Enterprise Value

$60.74B

$2.36B

$1.28B

$15.49B

$1.46B

Total Cash

$9.63B

$1.20B

$95.12M

$749.55M

$1.28B

Total Debt

$2.36B

0

0

0

$100.00M

Book Value per Share

$4.98

$1.22

$2.63

$8.42

$2.37

Operating Cash Flow, ttm

$1.61B

$370.19M

$-1.12M

N/A

$195.77M

Levered Free Cash Flow, ttm

$412.38M

$493.49M

$3.09M

N/A

-$105.70M

Profit Margin, ttm, (%)

1.04

-1.77

-13.89

2.22

-16.35

Operating Margin, (%)

10.57

4.46

-12.72

5.85

-6.83

Return on Equity, ttm, (%)

0.64

-4.26

-19.43

2.82

-11.72

Quarterly Revenue Growth (yoy), (%)

40.10

32.20

65.30

81.00

N/A

Quarterly Earnings Growth (yoy), (%)

-78.80

N/A

N/A

66.30

N/A

P/E

2,500

N/A

N/A

1,000

-3.9

P/B

5.8

4.5

9.7

19.5

1.5

P/S

12.2

1.6

14.1

20.0

1.7

Forward P/E

41.0

31.9

108.7

94.3

-32.3

Source: Yahoo! Finance and Morningstar

In short, these 5 stocks are outperforming the market YTD. ZNGA and LNKD are the most technically bullish ones. LNKD is the only one gaining continuously in 2012 and 2013 YTD. From a valuation perspective, P/E ratios of 2,500 for FB and 1,000 for LNKD are hard to assess. LNKD has the highest ROE and highest growth for revenue and earnings among these social network companies. Nonetheless, FB is still the most dominating player in the social network field with its $68B market cap where 1.06B people are using the site each month.

Note: All numbers are quoted from the closing of February 8, 2013. Investors and traders are recommended to do their own due diligence and research before making any trading/investing decisions.

Source: 5 Outperforming Social Network Stocks: Rebounding And Flying High In 2013