By Max Magee
With the hugely successful LinkedIn (LNKD) IPO last week, the social media goldrush has finally become accessible to individual investors. Up until now, deep-pocketed, well-connected money managers and company insiders have been the only ones able to take stakes in the social networking phenomenon.
The LinkedIn IPO rocket has not gone unnoticed by the other major social networking firms and the lure of huge profits may be tough to resist for the likes of Twitter and the ultimate big fish Facebook, which some speculate will almost definitely have its IPO in 2012, if not sooner. Indeed, peripheral social networking names like personalized radio service Pandora, are already in the social networking pipeline.
To help track this emerging investing trend, tickerspy.com has just launched the Social Networking Stocks Index.
Right now, there are still only very limited ways to invest in social networking companies in the public markets. Aside from LinkedIn, the primary focus of late has been on Chinese companies. Quicker than their U.S. counterparts to go public, Chinese dotcoms have been increasingly catching the eye of adventurous investors. Recent IPO Renren (RENN) was touted as the Facebook of China by many market watchers, and SINA's (SINA) microblogging site Weibo, has been called China's answer to Twitter.
From there, the social networking pickings get pretty thin. United Online (UNTD) owns a number of internet brands but was included in our Index due to its ownership of second-tier social networking site classmates.com. Classmates.com is included in United's "Content & Media" media segment, which reported revenue of $48.3 million in Q1. This is dwarfed by the amount of revenue brought in by United's primary business, online florist FTD. FTD brought in $158.9 million in revenues in Q1, meaning United isn't quite a social networking pure play. Many will also point out that classmates.com doesn't have the same "Web 2.0" feel that have made the newer giants in the space so exciting.
The same is likely true of Quepasa (QPSA), which bills itself a "social network and gaming platform for the Latino community." Though the stock has surged in tandem with the recent craze for social network stocks, it is still tiny, with revenue of just $2.2 million in Q1 and because of its narrow focus, it isn't seen as having the potential to become a worldwide online brand like Facebook and Twitter have.
Finally, there are the names we have left out, for now at least. Giants like Google (GOOG), Yahoo (YHOO), Microsoft (MSFT), Amazon.com (AMZN), Baidu (BIDU) and Netflix (NFLX) all have exposure to social networking in various ways, but for each of them, social networking is just one small facet of a much larger global strategy. Perhaps as social networking evolves, that will be the mature model, but for now investors are much more intrigued with the LinkedIns, Twitters, and Facebooks of the world.
Other potential components for this Index included Ancestry.com Inc. (ACOM), which we deemed to have more of a fee-for-service model than a social networking model. There are also the dating sites like Spark Networks (LOV) and recent Chinese IPO Jiayuan.com International (DATE), but again, these seemed fundamentally different than the communication and networking platforms offered by the big players.
As the social networking trend evolves, we will certainly adjust our Index accordingly. Are there any other stocks we should be looking at for inclusion right now.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.