Social Media Companies Compared

Atlanta, GA 5/24/12 (StreetBeat) -- Facebook Inc. (NASDAQ: FB), LinkedIn Corporation (NYSE: LNKD), Zynga Inc. (NASDAQ: ZNGA), CrowdGather Inc. (OTCBB: CRWG) and other social media companies have a wide array of valuations in the public markets. In this article, we’ll compare those valuations to determine the most underpriced and overpriced plays in the burgeoning industry.


* Data from Google Finance and Yahoo! Finance; Revenue Growth % for CRWG represents increase in Q3 FY 2012 revenue compared to Q3 FY 2011.

CrowdGather: The Most Undervalued Play

CrowdGather Inc. (OTCBB: CRWG) appears to be the most undervalued play in the sector, with solid revenue growth and a low price-book ratio. Currently, investors can purchase the stock for slightly less than the value of its assets minus its liabilities, and benefit from strong revenue growth that could translate to profitability on the bottom line over the near-term.

Aside from these statistics, the company has also seen a number of other qualitative factors that could make it a good buy. The firm’s CEO, Sanjay Sabnani, has been a consistent buyer of the stock and has even retired a significant number of shares. In fact, the insider’s cost basis for acquiring these shares is significantly higher than the current share price.

From a growth prospective, CrowdGather also has a lot more blue-sky potential. It’s far easier for a $16.88 million company to double its size and deliver outsized investor returns than it is for a $5.1 billion or $92.8 billion company to do the same. As a result, investors may find that this stock has greater upside potential than many other more popular players.


Popular Forums Owned by CrowdGather Inc.

High Multiples Could Benefit Smaller Stocks

Many companies in the social media space trade with lofty price-earnings multiples, such as Facebook’s (NASDAQ: FB) 108.4x and LinkedIn’s (NYSE: LNKD) 604.3x multiples. While these are higher than other tech companies, such as Google’s (NASDAQ: GOOG) 18.44x or Apple’s (NASDAQ: AAPL) 13.84x multiples, they are very positive signs for smaller companies that are approaching profitability.

For instance, CrowdGather is rapidly narrowing its net loss, and with high price-earnings multiples throughout the industry, the company could see its share price significantly higher if it were valued along the lines of the other Internet company multiples once it achieves profitability. And this could mean outsized returns for shareholders.

These multiples are largely driven by recent mergers and acquisitions in the space, such as Zynga’s buyout of the private company OMGPOP at a lofty price or Facebook’s purchase of Instagram for around $1 billion. Meanwhile, venture capital investments at similarly high multiples are also driving valuations higher throughout the sector.

Investing in the Social Media Sector

Many social media companies have experienced strong run-ups in valuation thanks to new IPOs, venture capital investments and M&A. However, some investors believe that these valuations may eventually prove too high to justify, especially in an industry that constantly changes. As a result, investors may be better of seeking undervalued plays with similar growth prospects.

CrowdGather Inc. (OTCBB: CRWG) is an owner and operator of a network of online communities that generate hundreds of millions of page views each month. With a market capitalization of just over $16 million, investors can purchase this stock for less than the value of its net assets and still benefit from the growth in the social media space.

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Social media investment bubble has popped

Atlanta, GA 5/22/12 (StreetBeat) – That fizzing sound you just heard coming from Wall Street in the wake of the Facebook Inc. (Nasdaq: FB) initial public offering was the sound of a bubble deflating.

You may have missed it due to the angry shouts of those who have lost big money on the most-hyped stock offering in history, even as Chief Executive Mark Zuckerberg and other insiders are laughing all the way to the bank.

Now that frothy air is accelerating out of the valuations of Internet social media companies, those investors who got in late to the party are worried how bad things might get. Many are selling first and asking questions later.

If you own shares of mutual funds focused on tech or growth stocks, those investors likely include you, unfortunately, since it was institutional money managers who were left holding the bag on Facebook. If you don’t own those funds, pat yourself on the back for avoiding the disappointment that social media investing has produced in 2012.

These stocks are now officially in correction mode.

As of this writing, in the last six trading days, $14 billion has been erased from the combined market caps of Facebook (Nasdaq: FB) , Zynga Inc. (Nasdaq: ZNGA +2.12%), LinkedIn Corp. (NYSE: LNKD +8.47%), Groupon Inc. (Nasdaq: GRPN -1.53%) and Yelp Inc. (NYSE: YELP -1.25%). That’s a 10.4% drop for the sector, which as of Tuesday was valued at $120 billion in aggregate.

Before this month, the sector had mostly tread water as big gains in LinkedIn offset losses in Zynga and Groupon.

Regular readers of this column will remember that last August, I suggested that the value of Groupon had peaked, after the company’s amended regulatory filings showed that its losses were widening despite a 10-fold jump in revenue.

That column came the month after Marc Andreessen, the new rising star of Silicon Valley venture capitalists, said of tech-company valuations: “On a 30-year basis, these things are cheap.”

But few investors have a three-decade time horizon, and the meaning of the word “cheap” isn’t the same for VCs — who get their shares in private transactions — as it is for investors who pay retail stock prices.

Private investors poured $1.4 billion into Internet companies in the first quarter of 2012, according to the National Venture Capital Association. It was the eighth straight quarter that Web startups garnered more than $1 billion, which means Andreessen is far from alone in his bullish assessment.

But with Facebook and the other young Internet companies now all failing to find firm bids in the public markets, it’s just a matter of time before the froth starts to come out of the valuations of private Internet companies as well.

The questions now are: Will the correction become a full-blown bear market? And how much will the social media bubble look like the dot-com bubble?

Fear and greed

As with other bubbles — from tulips to dot-coms — the social media boom was created by greed and inflated by fear.

The greed that started this bubble came from those in the private investment community who — by design, of course — are out to maximize profits. People invest money to make money, after all, so it’s no surprise that VC firms have rushed in to fund so many social media startups.

The fear that inflated it emanated from professional money managers who were terrified of missing out on the “hot” IPOs of the past 12 months; that fear is ironic when you consider these fund managers are, for the most part, playing with other people’s money — in millions of brokerage and retirement accounts — and thus have no real skin in the game.

Now that the VC-fed bubble in social media stocks has met the sharp anger of all those money managers counting up their Facebook losses, look for the public markets to start picking winners and losers in the social media industry. The rising tide that has lifted all social media boats is clearly ebbing.

Companies that can’t produce annual net income despite billions of dollars in annual sales — including Groupon and Zynga — are going to end up as also-rans or takeover fodder at valuations well below their current prices. But don’t grieve for their insiders, who cashed out big even before their disastrous IPOs.

At the same time, there’s a reasonable chance that Facebook and LinkedIn will survive as public companies — given that every new technology market produces two or three winners. (For example, think Intel and AMD in chips; Dell, H-P and Apple in PCs; Oracle, IBM and Microsoft in enterprise software; or Google and Amazon.com in Internet services.)

P/E watch

But it will take both Facebook and LinkedIn a long time to grow into their current valuations.

Based on Tuesday’s closing share price of $34.03 a share, Facebook is trading at about 65 times expected 2012 earnings of 52 cents a share, according to the consensus earnings estimates compiled by Thomson.

LinkedIn is even pricier. At a price of $96 a share, it’s trading at 143 times expected 2012 earnings of 67 cents a share.

Given that froth, even the best of the social media stocks might have much further to fall.

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Zynga (Nasdaq: ZNGA) files for $400 million secondary offering

Palm Beach, FL 3/14/12 (StreetBeat) -- Zynga Inc (Nasdaq: ZNGA) filed with regulators for a secondary stock offering of up to $400 million on Wednesday, paving the way for some early investors to exit their holdings.
Shares of the online games maker, which have risen 33 percent since the company went public, rose marginally in premarket trading on Wednesday. They closed at $13.38 on Tuesday on Nasdaq.

In a filing with the Securities and Exchange Commission, Zynga said it is waiving the lock-up arrangement the company had with some of its existing stockholders to facilitate the offering.

Investors are typically expected to wait for about six months after an IPO to be able to sell their shares freely, in order to prevent volatility in a company's stock.

Zynga's lock-up agreements from its December IPO were to expire on May 28, 2012.

Zynga, which went public late last year in a high-profile IPO that raised $1 billion, said certain existing stockholders would sell class A shares of the company's stock.

It did not name the stockholders offering the shares, or the number of shares that will be sold.

Morgan Stanley and Goldman Sachs are acting as the lead underwriters for the offering.

Please contact www.thestreetbeat.com for interest in our latest investor relations platform the “CEO Interview Series” with its host Steve Kanaval. The package includes a one-on-one interview with a seasoned industry professional; published segment to our web site with embedded audio/video file; and a compressed file that can be easily e-mailed out to your current and/or potential investors. Please e-mail bflautt@gmail.com or call (662) 392-0740 for pricing and scheduling.

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Zynga (Nasdaq: ZNGA) falls on sluggish paying players outlook

Orlando, FL 2/15/12 (StreetBeat) -- Zynga Inc (Nasdaq: ZNGA) shares fell 7 percent in premarket trade, suggesting investors were wary of the social game maker's weak bookings outlook and expensive valuations, and at least three brokerages downgraded the stock.

A lackluster fourth-quarter showing -- Zynga's first as a publicly traded company -- and expectations of sequentially slowing bookings in the first half of 2012, may rattle bullish industry watchers who have driven up the company's valuations.

Bookings is the metric Zynga uses to measure the cash it gets upfront when people spend money on virtual items in its games such as tractors, houses or poker chips.

Evercore Partners said the company's stock -- trading at 31 times the brokerage's 2013 estimate for earnings before interest taxes depreciation and amortization (EBITDA) -- bears risk, and downgraded it to "under weight" from "equal weight."

The company, which went public in December, trades nearly 67 times forward earnings, compared with the sector average of 12, according to Thomson Reuters data.

"Core game monetization is slowing more rapidly than expected,"Macquaries Equities Research said in research note.

Zynga said its games are designed to gain popularity and make money in the longer term, adding that it still has the six-most played games on Facebook.

The owner of the popular Farmville and Cityville games does not disclose the number of its unique payers on Facebook, making it difficult to gauge any possible deceleration trends.

The company's Words with Friends, a Scrabble-like game, was recently in news after actor Alec Baldwin got kicked off an American Airlines flight for playing the game on his iPhone while the plane was parked at the gate.

While filing its IPO last year, Zynga said it gets almost all its revenue from Facebook. Investors are closely watching its strategy to diversify and make money from games on smartphones and tablets.

Analysts, however, remain convinced that Zynga is well positioned for longer-term growth.

"Zynga was one of the key developers that turned Facebook from a relatively passive communications medium to a more active and engaged social platform," Robert W. Baird & Co wrote in a research note, and downgraded the stock.

"While growth has slowed for both Facebook and Zynga, long-term secular shifts in content consumption, along with significant growth opportunities on smart devices from Apple and Google are too compelling to ignore."

The gamemaker's shares, were trading at $13.42 in trading before the bell. The stock, which has jumped more than 30 percent since its December 16 debut, closed at $14.35 Tuesday on the Nasdaq.

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Zynga (Nasdaq: ZNGA) shares surge on Facebook 'halo effect'

Northern, WI 2/2/12 (StreetBeat) -- Shares of Zynga Inc. (Nasdaq: ZNGA) surged 16% Thursday morning, setting a new record high since the company's initial public offering in mid-December. The stock rose as much as 20% to a high of $12.91 in early trades. Analysts cited a "halo effect" from Facebook's S-1 filing on Wednesday afternoon -- ahead of its own IPO expected for later this year -- which spelled out more clearly the strong relationship between the two companies, with Zynga accounting for about 12% of Facebook's overall revenue last year. "While this doesn't reduce the risk of Zynga relying on Facebook, we do see that Facebook also relies on Zynga," said Ed Williams of BMO Capital in an interview.

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Zynga Inc (Nasdaq: ZNGA) Raises $1 Billion in IPO

Tallahassee, FL 12/16/11 (StreetBeat) --Zynga Inc. (Nasdaq: ZNGA) raised $1 billion in its initial public offering, pricing shares at the top of its marketed range.

The developer of such popular games as CityVille, FarmVille, and Mafia Wars sold 100 million shares for $10 each. Zynga had offered the stock for $8.50 to $10 a share. It will start trading today on the Nasdaq under the symbol ZNGA.

Zynga’s is the biggest offering by an American Internet company since Google (Nasdaq: GOOG) raised $1.9 billion in its 2004 IPO. It planned to offer about 14 percent of its common stock, according to a regulatory filing. Other Internet companies making their public debuts this year — Groupon , LinkedIn , and Pandora — offered less than 10 percent, using smaller free floats to boost initial demand for their stock, pushing the price higher.

Founded in 2007 by CEO Mark Pincus, Zynga doubled sales to $829 million in the first nine months of 2011. The IPO values Zynga at as much as $7 billion, or 6.8 times revenue in the year through September 30. Rival Electronic Arts (Nasdaq: ERTS) has a market value of $6.9 billion, or about 1.8 times sales.

The game maker’s increasing ubiquity and expansion prospects appeals to investors, said Colin Sebastian, an analyst at Robert W. Baird & Co. in San Francisco.

“Zynga and its games are becoming consumer brands and there is a lot of recognition for growth potential,” he said. “My guess is that the shares will be well-received.”

Zynga planned to sell all of the shares in the IPO, and to use the net proceeds, or about $889 million, for game development, marketing, and general corporate purposes.

Zynga gets more than 90 percent of its revenue from Facebook , which is currently preparing for its own IPO, which could value the company at more than $100 billion, a person with knowledge of the matter said last month.

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