Overview On Social Media Before Facebook IPO

The social media sector is the most recent focus of the market with Facebook (FB) being the crown jewel and the most expected IPO of the year.

Social media is recent but we must distinguish those companies that had their IPO last year [LinkedIn (LNKD), Zynga (ZNGA), Groupon (GRPN) and Yelp (YELP)] and those that have been in the market for more than 10 years [Quepasa (QPSA), Geeknet (GKNT), Sina (SINA) and Google (GOOG)]. In the next analysis I will exclude Google because of its diversity in terms of activity, even so it will be present in the table of companies' financial data due to its importance to the sector.

Looking at fundamentals, generally companies in this sector have a debt ratio bellow 30% with Groupon being the only exception with a ratio around 60%. Comparing the price to their book value we observe that all of these companies are trading well above the respective book value, with Linkedin, Groupon and Yelp on the top.

In terms of main activity we should distinguish between those companies with negative EBITDA Margins and the others that actual make money. Zynga, Groupon, Yelp and Quepasa have negative EBITDA Margins and are also the same companies that had the biggest increase on sales last year (Zynga 336%; Groupon 97722%; Yelp 90%; Quepasa 660%) representing a strategy based on growth disregarding short term profitability, which can be assumed that they pretend to first stabilize sales at a higher level and just later cut the costs in order to achieve positive net income in the longer term. Even with this being clearly a risky growth strategy, we must take into consideration that their main activity can easily be replaced by new competitors, remember how fast hi5.com was replaced by Facebook.

	Facebook	LinkedIn	Zynga	Groupon	Yelp	Quepasa	Geeknet	Sina	Google
Values in Millions	FB US EQUITY	LNKD US EQUITY	ZNGA US EQUITY	GRPN US EQUITY	YELP US EQUITY	QPSA US EQUITY	GKNT US EQUITY	SINA US EQUITY	GOOG US EQUITY
TOTAL LIABILITIES *	1.432	249	767	1.073	13	16	13	329	14.429
TOTAL ASSETS *	6.331	874	2.517	1.774	44	107	64	1.391	72.574
DEBT RATIO *	22,62%	28,47%	30,48%	60,49%	29,06%	15,13%	20,70%	23,65%	19,88%

LAST 12 MONTHS
SALES **	3.711	617	1.218	1.610	94	12	122	483	39.975
OPERATING INCOME **	1.756	35	- 527	- 238	- 23	- 10	- 1	35	12.835
NET INCOME **	668	15	- 506	- 279	- 24	- 13	- 1	- 302	10.829
EBITDA MARGIN **	56,02%	13,20%	-27,21%	-12,78%	-14,33%	-65,08%	0,50%	11,79%	35,86%
SALES 3YEARS AVERAGE GROWTH **	142,57%	89,89%	336,16%	97722,30%	90,68%	660,77%	29,69%	9,74%	20,59%

MARKET CAP ***	N/A	11.593	5.860	6.377	1.232	137	86	3.612	200.557
PRICE ***	N/A	112,44	7,96	9,92	20,23	3,76	13,34	54,84	615,65
PER ***	N/A	941,67	N/A	N/A	N/A	N/A	N/A	N/A	18,66
IPO PRICE	35,00	45,00	10,00	20,00	15,00	12,00	30,00	17,00	85,00
CHANCE SINCE IPO ***	N/A	149,87%	-20,40%	-50,40%	34,87%	-68,67%	-55,53%	222,56%	624,29%
BOOK VALUE ***	2,45	6,37	2,42	1,09	2,30	2,51	7,82	15,96	189,36

BUY RECOMENDATION ***	100%	52%	48%	28%	20%	50%	100%	57%	86%
SELL RECOMENDATION ***	0%	4%	13%	20%	0%	50%	0%	7%	0%
HOLD RECOMENDATION ***	0%	44%	39%	52%	80%	0%	0%	36%	14%