News recently came out that the much-anticipated initial public offering for Facebook might be just around the corner. The Wall Street Journal detailed the specifics in an article which stated:
Facebook could file documents with the Securities and Exchange Commission as early as this coming Wednesday, said one person familiar with the matter. But that is just one scenario Facebook executives are considering, the person said. Executives are also considering filing a few weeks later, the person said. At a valuation between $75 billion and $100 billion, Facebook is looking to raise as much as $10 billion, said people familiar with the matter.
When this news hit the wires, a number of Internet-related stocks perked up almost immediately. There is good reason to believe that this is not just a one day rally, but, rather, what could be a re-valuation of many Internet stocks. The interest in Facebook is enormous, and the valuation is mind-blowing for some investors to contemplate. Based on some estimates, Facebook could be trading for about 20 to 25 times revenues, and yes that was revenues, not earnings. Many Internet stocks have languished in the past several months, and some (in particular Chinese Internets) were trading around book value and even near cash value. Since valuations are not stretched for most stocks in this sector, the rally has plenty of room to run.
The Facebook IPO is likely to be very successful, and most investors will not have a chance to buy at the IPO price. This will push many investors into buying other Internet stocks, as Facebook sets a new standard for valuation and renews interest in the sector as a whole. The past couple of years have been very difficult for many investors and the economy in general. The Facebook IPO is just what this market needs to show that capitalism still creates enormous wealth and that investors can be richly rewarded by buying stocks. Internet stocks have seen boom times when valuations went way beyond what most imagined, and they have also dropped to extreme lows. Many Internet stocks have just started to rebound from very depressed levels, so a major new bull market could just be getting started. Below are a number of stocks which could see very significant gains in the days following the Facebook IPO:
E-Commerce China DangDang Inc. (DANG) is a leading online retailer in China. Many view this company to be the Amazon.com (AMZN) of China as they sell a wide variety of products. This company has been growing extremely fast, and analysts expect revenues to grow from $558 million in 2011 to about $881 million in 2012.
DangDang also has an extremely strong balance sheet, with no long-term debt and about $245 million in cash. The company has an excellent management team that appears to be following much of Amazon.com's very successful trajectory. Recently, DangDang announced plans to offer a e-book reader, and it also offers many other products that has made Amazon.com a retailing giant. When you see the potential that Internet retailing has and combine it with the huge population base and rising incomes in China, DangDang has the potential to make many millionaires out of buy and hold investors. This stock has rebounded from ridiculously low levels, caused in part by tax-loss selling last month. However, it is still trading for about half the December 2010, initial public offering price of $16, and for about a quarter of the 52 week high, so plenty of upside remains. The hugely successful Tiger Global Fund is the largest shareholder of this company, and they have made fortunes buying Internet stocks in the past. Dangdang has a market capitalization of about $661 million. By comparison, Amazon.com has a market capitalization of about $89 billion. If DangDang achieves that valuation, the stock would trade for about $113 per share someday.
Here are some key points for DANG: Current share price: $8.34. The 52 week range is $4.11 to $30.35 Earnings estimates for 2011: a loss of 35 cents per share. Earnings estimates for 2012: a loss of 53 cents per share. Annual dividend: None
Renren, Inc. (RENN) operates one of the largest social networks, and is based in China. This company is referred to as the "Facebook of China" by many investors. This company also develops games and other websites. Since China has a huge population, and very high growth potential from Internet users, this company is almost certain to be a long-term success. While Facebook is likely to be the leading global social network, Renren could still make lots of money for its shareholders by focusing on the potential that being the top networking company in China offers. Renren has a market capitalization of about $2 billion, but it also has about $1.2 billion in cash on the balance sheet, which gives this company a very undervalued enterprise value of about $863 million. Buy and hold this stock for several years, and you could see huge gains.
Here are some key points for RENN: Current share price: $5.25. The 52 week range is $3.21 to $24. Earnings estimates for 2011: a loss of 3 cents per share. Earnings estimates for 2012: break-even results. Annual dividend: none
Baidu, Inc. (BIDU) is a leading search engine company, based in China. Baidu went public several years ago, and many doubted that this company could compete with Google (GOOG). Some investors doubted this company early on and underestimated how Chinese consumers would use a China-based search engine over an American company. Anyone who bought this stock at the IPO or even a few years ago has seen huge returns. As more people in China join the middle class, millions will start using the Internet, and Baidu will benefit. This isn't the cheapest stock, but the growth potential is significant for long-term investors. It makes sense to buy on pullbacks. Baidu has a market capitalization of about $46 billion.
Here are some key points for BIDU: Current share price: $131.36. The 52 week range is $100.95 to $165.96. Earnings estimates for 2011: $2.95 per share. Earnings estimates for 2012: $4.53 per share. Annual dividend: none
Sina Corp. (SINA) operates several top websites in China. The most popular websites include Weibo.com which is a blogging site, and Sina.com, which has news and info on many subjects. This stock is trading well below the 52 week high of about $147 per share, so it could be a great buying opportunity for long-term investors. Sina has a very strong balance sheet with very little debt, and about $742 million in cash on the balance sheet. Sina has a market capitalization of about $4.6 billion. This company is seeing strong growth, but not as much as some other companies listed here, so I would only buy on dips.
Here are some key points for SINA: Current share price: $69.96. The 52 week range is $46.86 to $147.12. Earnings estimates for 2011: 94 cents per share. Earnings estimates for 2012: $1.44 per share. Annual dividend: none
Yahoo!, Inc. (YHOO) is a leading U.S. based Internet website that also owns valuable assets in Asia. There has been a high level of management turnover at this company recently as well as in the past. Something is going to give here sooner or later, and Yahoo has been a takeover target in the past. There seems to be plenty of unlocked value in this stock if Yahoo management either finds better ways to monetize the assets or sells the company outright. The Facebook IPO is likely to heighten demand for all Internet stocks and push values of companies like Yahoo higher. Yahoo has a market capitalization of about $19.5 billion.
Here are some key points for YHOO: Current share price: $15.74. The 52 week range is $11.09 to $18.84. Earnings estimates for 2011: 82 cents per share. Earnings estimates for 2012: 93 cents per share. Annual dividend: none
Data is sourced from Yahoo Finance. No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.