Branchout Is Exposing The Social Media Bubble

Galileo Russell profile picture
Galileo Russell
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To Wall St., LinkedIn (LNKD) and Zynga (ZNGA) are both classified as social media stocks, and they both happened to be priced to completely dominate their respective niches. This should be the first warning sign that a social media bubble is underway. To give just a little perspective on just how ludicrous social media valuations are, here's a glimpse at some multiples of industry leaders.

Company Current PPS 2012 P/E 2013 P/E
LinkedIn $92.05 150.9x 85.3x
Zynga $13.35 49.4x 37.1x
Groupon (GRPN) $16.88 64.9x 20.6x

Not only are these social media companies trading for absurd multiples but they are doing so while pricing in monstrous growth. These forward earnings estimates are implying annual growth ranging anywhere from 50-100%. If that growth doesn't materialize, then these companies valuations will get even higher. The main issue when pricing in that much growth is a lack of accounting for competition. Unfortunately for LinkedIn, it's been the first social media IPO to be hit with this problem.

BranchOut is a Facebook app that started 2012 with only about 1 million active users. In just the past 2 1/2 months BranchOut has grown 730% to 8.3 million active users. BranchOut is very similar to LinkedIn in that it helps consumers connect to jobs via an online professional network. BranchOut appeals to a less formal crowd than LinkedIn (so an even bigger market), and most importantly it is free.

For many of LinkedIn's best services, such as messaging or getting to see who viewed your profile, you must be a premium member. This means consumers are having to pay money to get the full benefit of the product. BranchOut doesn't work like that as they've set aside making profits for now and are purely focused on marketing and driving user growth. As I mentioned before, their service

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Galileo Russell profile picture
1.74K Followers
Hi my name is Galileo, I went to NYU Stern to study finance (class of 2015). I'm a finance geek whose two biggest current fascinations are Tesla and Bitcoin.HyperChange TV is a new YouTube channel I launched geared toward millennials with the intent of creating fun, educational and unique content. If you like my articles, check it out via the link on my profile.Contact: galileorussell@gmail.com

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