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Stock Market Watch Starting May 22: Taking Stock Of Social Media Stocks In The Wake Of The Facebook IPO Debacle

|Includes: Facebook (FB), FFNT, MCHX, MEET, MM, MSFT, RENN, SOCLF, ZNGA

The long anticipated Facebook IPO last Friday is looking more and more like an overvalued dud that will soon find a more appropriate valuation thanks to market forces. Worst, Facebook (NASDAQ:FB) dragged down much of the social media and social networking space with it but there were still a few winners.

The Facebook IPO Winners

Its worth noting that mobile marketing and mobile advertising stocks Velti Plc (VELT), Millennial Media (NYSE:MM) and Marchex (NASDAQ:MCHX) all made sizable gains last Friday with VELT rising 14.38%, MM rising 9.57% and MCHX rising 6.90%. For the most part, these stocks have been holding their gains into this week and may hold onto them for a good reason: Advertising accounts for 82% of Facebook's revenue for the latest quarter and the company needs to find a way to fit advertising onto the screens of mobile phones and other devices. Hence, a smart move for Facebook (FB) might be to buy one of these companies or a mobile marketing technology.

The Facebook IPO Loosers

Since the market opening on Friday, social networking and social media stocks have not been friends for investors. In fact:

  • LinkedIn Corporation (LNKD) is down 7.7%.
  • Zynga (NASDAQ:ZNGA), a social gaming stock, is down 14.3%.
  • Quepasa Corporation (QPSA), which operates a social media platform for Latin America plus the myYearbook platform, is down 18.4%.
  • RenRen (NYSE:RENN), which is China's version of Facebook (FB), is down 24%.
  • FriendFinder Networks (FFN), which operates a number heavily trafficked social media type of websites, is down 25.9%.

Nevertheless and for investors who want exposure to the entire social networking and social media sector with out the inherent risk poised from owning one or two stocks in the space, the Global X Social Media Index ETF (NASDAQ:SOCL) attempts to replicate the performance of the Solactive Social Media Index. Its top 10 holdings at the end of the first quarter included the following social media stocks:

  1. LinkedIn Corporation (LNKD) 11.75%
  2. Tencent Holdings (HKG: 0700) 10.89%
  3. DeNA Co (OTCPK:DNACF) 9.18%
  4. SINA Corporation (NASDAQ:SINA) 9.05%
  5. Gree (OTCPK:GREZF) 8.28%
  6. NEXON Co. (TYO: 3659) 7.84%
  7. Yandex NV (NASDAQ:YNDX) 5.48%
  8. Google (NASDAQ:GOOG) 4.94%
  9. NetEase (NASDAQ:NTES) 4.91%
  10. Zynga (ZNGA) 4.72%
  11. Other Stocks etc. 22.96%

No doubt these holding will have changed with the Facebook IPO and the ETF is down about 5.4% since the market opened on Friday, up about 3% since the start of the year and down 9.4% since last November. In other words, the Global X Social Media Index ETF (SOCL) performance has been relatively mixed but if Facebook (FB) keeps falling, it's going to drag SOCL down with it.

The Final Verdict

Again, it looks like Facebook (FB) was overvalued in its IPO which means that for better or for worst, the market will help it find the appropriate valuation that its investment bankers were not able to do. However and as we noted last week, there are still plenty of reasons NOT to buy Facebook (FB) stock but it may take time for the concerns we outlined to further impact the stock. Until then, it might be a good idea to add Facebook (FB) and other social media stocks to your My Portfolio screen in order to keep track of our latest stock predictions for them as it looks like the whole social media space will be volatile for some time until Facebook finds its footing.