With the Facebook IPO Roadshow in full-swing, I decided to embrace this historic event and dedicate the whole week to everything about the Facebook IPO. It's the largest IPO ever, and I had to do something big. While many speculate Facebook will produce great gains, many people overlook the fact that many other companies will prosper as well. I like to call it the Facebook IPO Trickle Down Effect, and below are 10 Stocks I believe will benefit enormously from the Facebook IPO.
10 Stocks Poised to Prosper From Facebook's IPO: 1-5
1. Microsoft (NASDAQ:MSFT) - I don't think I need to explain what this company does, but many of you might be wondering what connection do they have with Facebook? Well, after many attempts to become a player in the social networking sector, nothing quite has worked out for Microsoft; as a result, CEO Steve Ballmer decided to buy part of Facebook instead. Yes, in 2007 Micosoft purchased 1.6% of Facebook for $240 million. Mr. Ballmer made a great move; back then, Facebook was valued at only $15 billion. Since then, Facebook's value has increased enormously, with analysts projecting the company to be worth roughly around $100 billion (ridiculous, I know.) As a result, Microsoft's FB shares have done quite nicely, so Ballmer decided to follow the same route as Goldman Sachs and sell 6.56 million of their 32.8 million Facebook shares at a mid-IPO price of $31.50. This sale will make Microsoft $206.5 million, almost recouping their initial investment and allowing them to play with the house's money, still holding over 26 million shares.
Recommendation Buy: Microsoft is one of the stronger tech plays out there, and under Mr. Ballmer's guidance, he's done a great job at opening up many new great growth opportunities for the company in times to come.
2. Goldman Sachs (NYSE:GS) You might know them as the evil nemesis on Wall Street, as Goldman Sachs' leaders consider investment banking to be "God's Work," however when it comes down to money managing, GS is great at what they do. Goldman is currently selling 13.2 million shares of their 65.9 million Facebook shares. Selling at the mid IPO price of $31.50, Goldman stands to make $415.5 million, coming close to recouping their initial investment while still holding 42 million more shares. I love their strategy in this one, selling another to get back their initial investment so they can just play with the houses money.
Recommendation Underperform: I foresee GS not really having too much movement in the near future, kind of hovering between $106-$120. One thing to watch out for is if the stock makes a good one-day run during FB's IPO based on their large investment, and just the media buzz swirling around the two will be interesting to watch.
3. Jive Software (NASDAQ: (NASDAQ:JIVE) - Jive provides social business software platforms to companies, government agencies and others. They are often called the "Facebook for
Enterprise." They originally went public in late 2011, and shares have performed strong ever since gaining 42% this year already. Recent critics have questioned the company's valuation and fundamentals resulting in shares falling, however, this could just create a good entry point for new investors.
Recommendation Hold: Jive's a very interesting and intriguing play. However, I think there are better stocks to own out there right now, so I'm sitting tight.
4. LinkedIn (LNKD) - LinkedIn was the first social networking site to ever go public. Back in May 2011, LNKD held their IPO at $45 per share, and they had one of the strongest opening IPO's, with share prices reaching a high of $122.70 that same day. LinkedIn has priced the demand for profitable social networks. "Facebook Fever" continues to be all we hear, however, what many people missed was that only last week, LinkedIn reported strong 1st-Quarter results, producing $188.50 million in revenue, beating Wall Street's expectations as well.
Recommendation Buy: LinkedIn has been one of the great stories of 2012, with shares soaring over 77%, along with the company producing great financial numbers and strong growth prospects going forward. While directly LinkedIn and Facebook don't compete, they are in the same sector, and the two will always play off each. Look for LNKD shares to get a nice boost once FB goes public.
5. Equinix (NASDAQ:EQIX) - Based in Redwood City, California, Equinix is just like DLR, a data center company and also a client of Facebook as they are among one of their top customers, along with financial services and data networking companies. EQIX recently posted outstanding 1st-quarter earnings and revenue, as numbers jumped over 25% as their cloud computing mobility and data management businesses grew significantly, and as they reported $452.2 million in revenue. As a result, EQIX has been a great investment so far in 2012, appreciating over 55% mainly due to their beating all consensus analysts estimates with their strong 1st-quarter report.
Recommendation Hold: EQIX looks to be a little overweight at the moment, as they are coming off strong recent surges, and shares should rise further due to FB's IPO. However, after that, we could see share prices drop a little before 2nd-Quarter earnings, which could open up a great potential buying opportunity for investors.
6. GSV Capital (NASDAQ: (NASDAQ:GSVC) - Investors looking for ways to buy Facebook before it goes public can look no further than GSV Capital. GSV buys stakes in private companies that are in the development stage, like a venture capital fund. GSV acquires positions from the companies themselves and through secondary markets. GSV owns 225,000 shares of Facebook, along with large stages in Twitter, Groupon and Bloom Energy.
Recommendation Buy/Hold: GSV Capital is a strong business from top to bottom with great growth opportunities and assets. Over time, I believe the stock will do just fine. However, don't buy GSV as a way to ride the FB IPO, as I think the gains won't be what you expected, as some of that has already been factored in months before.
7. Fusion-IO (NYSE:FIO) - The company is best know for their solid-state-drives [SSD]. Its two largest customers are Facebook & Apple (NASDAQ:AAPL). SSDs allows Facebook to have access to data at faster speeds with lower power and cooling costs. FIO's most recent third-quarter earnings beat analyst expectations, however, shares still fell on gross margin concerns. The good news however was the fact total revenue rose 40% last year totaling $94.2 million earned. Overall, the company has strong potential going forward as the potential market still is vast and untapped. Another strength is how FIO continues to improve their products which they can offer to customers; this will attract many new clients, and lead to great future growth opportunities, making the stock very attractive to long-term investors. Based on the fact that Facebook is one of their largest customers, the FB IPO trickle-down effect will definitely give FIO a nice bump in share prices.
Recommendation Buy/Hold: Right now, lets wait and see how shares do on FB's IPO and examine their future growth prospects and business as a whole then.
8. Zynga (NASDAQ:ZNGA) - Zynga is one of the top social gaming companies out there, and they are the closest way to invest in Facebook without actually owning any FB shares. Facebook generates a large portion of its revenue from Zynga, about 11% of 2011 revenue and 12% of 1st-quarter 2012 revenue. Zynga plays such a significant role in Facebook's operations, that the company had to list them as a major risk factor in its S-1 filing. The S-1 filing states:
If the use of Zynga games on our platform declines for these or other reasons, our financial results may be adversely affected.
The San Francisco-based startup company, Zynga, has been vastly working at diversifying their operations to not be so reliant on Facebook. It started when they launched their Zynga.com platform, and some analysts believe the company is current working to expand into online gambling. Zynga has been proactively targeting many new markets to grow the brand; most recently, they purchased the popular gaming app Draw Something's maker OMGPOP for $200 million as another way to diversify from Facebook. Only time will tell if this was a smart acquisition, and if their new ventures will pan out, but one thing is for sure; come Facebook's IPO, ZNGA will is one of the big beneficiaries, so expect the stock to rise.
Recommendation Hold: I would stay clear of ZNGA, as don't think their overall business is strong enough to impress analysts and generate large revenue members, so I'd hold off buying any shares. If you already own ZNGA, then hold onto them, and pay close attention to how the stock fares on FB's IPO, as it could be a great way to sell your shares at a peak.
9. Renren (NYSE:RENN) - Renren is basically the "Facebook of China." Yes that's right, many of you might not know, but of the 900 million users Facebook already owns, none are from China, a huge, untapped market that they've been fighting to get in. Unfortunately, strict Chinese regulations and privacy laws will most likely never let Facebook enter China, so that's where Renren becomes so interesting. They basically have no competition from the outside world, something every business would love to have their country do for them.
Recommendation Hold/Overweight: Renren's been on the the way up throughout 2012, with shares soaring a whopping 81%. While that's a great sign, it's also a concern from me, with speculation of a sell-off in sight. It could see good pump from FB IPO, but keep this stock on your watch list, as will be interesting to see how it plays out, especially as we learn more about Facebook.
10. Digital Realty Trust (NYSE:DLR) - The San Francisco-based real estate investment trust [REIT] recently reported strong 1st-quarter earnings. Analysts believe demand for DLR's data centers still remains strong and is growing. The company is expanding by adding commercial space designed for several tenants, along with re-developing vacant space at their internet gateway data centers. DLR counts Facebook as one of their major tenants, and as Facebook's needs for server farms continues to grow, DLR looks poised to benefit.
Recommendation Hold: DLR is a strong company with many great growth prospects, however, shares might be a little overweight, especially since, like the rest of the pack, DLR should be a great benefactor from FB's IPO.
Disclosure: I am long (MSFT) (LNKD).