Facebook IPO Halo Boosts Social Media Stocks
Facebook’s imminent IPO might mint a mess of millionaires in Silicon Valley by Friday, but in the meantime, it’s driving wealth in a few newly public Internet companies, as well.
With the social networking company’s offering reportedly oversubscribed, some investors are looking for ancillary ways to profit from it, and seem to be turning to Facebook’s already public social networking peers.
As Arvind Bhatia, a financial analyst who covers Facebook for Sterne Agee, observed: “I do sense some ‘temporary’ momentum for these related social media stocks.”
Consider: Shares of LinkedIn, Zynga, Pandora, and Yelp have all been trading up in advance of Facebook’s IPO. On Wednesday, LinkedIn closed at $113.49; on May 1, it was trading around $106. Pandora shares ended Wednesday at $11.37, having closed at $8.56 on May 1. More recently, shares in Yelp — which had been slipping lower in value — saw a sudden uptick around May 11.
It’s the same thing with Zynga, which accounts for about 15 percent of Facebook’s revenue. While its stock has been down 25 percent in the last month, it’s been up 2.75 percent in the last five days.
Also on the upswing: RenRen, the so called “Facebook of China,” whose shares were up more than 7 percent Tuesday.
You could add Groupon to this list, as well — although much of the recent upswing in its share price is likely due to the company’s strong first-quarter results that beat Wall Street expectations.
More likely, these stocks are all benefiting from the halo of interest surrounding Facebook’s IPO, an offering that may well prove to be the biggest-ever in the Internet space. Investor drive for a piece of Facebook is becoming the drive for a piece of a company like Facebook or, better yet, one that might be acquired by it.
“LinkedIn, Zynga, Pandora, Yelp … these are all potential acquisition bait for Facebook,” Ironfire Capital founder Eric Jackson told AllThingsD. “If Facebook is going to trade at a premium — like $150 billion to $200 billion, why not buy the fish and the bait, too?”
But this is all pre-IPO chatter. What happens on Friday, and the Monday following — and in the months to come — will provide a hard-and-fast answer to the question of whether the Facebook halo has any true longevity.
If Facebook’s IPO delivers the gains investors expect, sentiment toward the social media stocks may well continue to improve, making the decision to “buy bait” the past few days a wise one indeed.
Said GreenCrest Capital analyst Max Wolff: “By Friday mid-morning Facebook will be the anchor in a sector with several names, a diversity of stories and well over $130 billion in market capitalization.”