Facebook's user metrics are declining - meaning valuations for the rest of the social media/networking stocks should trend down over time. Investors may not want to overweight their long-term portfolios ith Linkedin (LNKD), Pandora (P), Renren (RENN), Groupon (GRPN) and other soon-to-IPO social media/networking stocks.
The era of perpetual quarter-to-quarter compound growth is over for Facebook, with negative implications for other social media/networking companies. To wit:
- In the United States Facebook lost nearly six million users in May (source: Money Authority)
- In Canada Facebook lost 1.5 million users in Canada in May (source: Global News)
To see if the Facebook decline is reflected in other social media companies, we checked sequential Q/Q percentage growth for the last quarter reported for Pandora, Linkedin, Renren and for Groupon's four markets, for which data was disclosed in the S-1 filing. The results are:
- Pandora, an anemic 6% growth
- Renren, -1% - which may explain the stock's crash after the initial enthusiasm
- Linkedin, +15% - which is good not great
Groupon's individual markets:
- Chicago, +27% for the very first and most mature U.S. market
- Boston, +31% for the second U.S. market
- Berlin, +36%
- London +86%, which is a clearly unsustainable sequential quarterly growth rate
Facebook's user decline in the U.S. and Canada is the carnary in the coal mine regarding sequential quarterly growth for the entire social media/networking industry. We expect, therefore, that over time valuation metrics for currently public and soon-to-be-public social media companies will trend down, including price-to-sales, price-to-earnings (when there are earnings), price-to-book value and price-to-tangible book value.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.