Is Social Media Dead as an Investment?

Posted by on Jul 27, 2012 in Stock Market | 7 comments

Investors are fleeing social media stocks in droves. Pandora (P), Groupon (GRPN), Zynga (ZNGA) and Facebook (FB) are all being crushed. Angie’s List (ANGI) and Yelp (YELP) aren’t doing much better. Only LinkedIn (LNKD) is trading around where it was on the day of its IPO. Does this mean the end of the game for this sector of the Internet 2.0, or is it just a bump in the road? While I don’t have a horse in the game, I’ve come out publicly against owning any of these stocks. What do you think?

7 Responses to “Is Social Media Dead as an Investment?”

  1. Alon Raskin says:

    Monetizing their business has always been a struggle for these web companies. There is an unwillingness by end users to “pay” for the services that these companies offer and this is reflected in these companies share prices. Unless someone can work out how to actually make real money of these business models I am afraid that share prices will continue to plumett. At least these we are seeing some sanity in the market unlike the last tech bubble…

    • Alon, I think you’re correct. The one company that appears to have figured it out is LinkedIn (LNKD). Their business is growing, they’ve figured out how to charge for their service, and that is currently reflected in their stock price. The holy grail for the rest of them seems to be mobile. It remains to be seen if anyone can figure out how to charge for their service across the smartphone/tablet market.

  2. do they say why the performance is poor on these investments?? personally, you know how i’m addicted to social media so this is somewhat surprising????

    • While there is no blanket answer that covers all of these stocks, a common theme is the inability of many of these companies to properly monetize their products. Zynga relies too much on Facebook for their revenue and has many games that people play for free. And a number of competitors have joined the space. They are in big trouble. Groupon has a VERY high fixed cost and no barriers to entry. Pandora also gives their product away for free and there are lots of competitors. Facebook has outsized growth aspirations without figuring out how to capture revenue from mobile devices. This is not unusual. There are always winners and losers in tech. Investors just need to figure out which business models will survive.

  3. Many of my friends, young and old, are saying they’re “so over” Facebook, etc. The main reasons given are waste of precious time and privacy concerns. Some have taken themselves off Facebook completely. On the other hand, my international students are on it ALL THE TIME.

    • Bonny, that could end up being a real problem for Facebook: burnout. I know of a few peple as well who have given it up, and others who’ve never bothered to log on in the first place. Personally, I still use it but I’ve not invested in it, nor do I recommend it for any of my clients.

  4. As a followup, after the opening bell today, Groupon (GRPN) sinks to a new low, below $6. With Zynga (ZNGA) under $3, two very popular IPO’s of the recent year are headed to oblivion.

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