Market Overview

Social Network IPOs

Facebook, the grand daddy of social networks, is expected to file for IPO on Wednesday.

A long anticipated event, this can either energize the technology company IPOs once again, or it can mean that intelligent companies always sell out at the top of the market.

The verdict is yet to be known, but it is certain to bring great fortunes for Facebook employees.

Before Facebook, a torrent of social networking companies filed IPOs in 2011. Let's take a look on how some of them do after trading publicly.

LinkedIn: (NASDAQ: LNKD)

LinkedIn, often cited as the Facebook for professionals, went public in May of 2011.  On the day of the IPO, it traded above $120/share and settled at $94.25/share at the close.  The $120 mark, however, was the peak of its share price so far, and the stock was last traded at $72.15/share.

This may be disappointing to those who bought above the last traded price, but considering that the company is valued at ~$7 billion, and has a forward P/E ratio > 100, we can be assured that there are a lot of happy investors who bought it before the IPO.

Zynga: (NASDAQ: ZNGA)

Like movies that get released before the end of year so they can get the chance to be nominated for the upcoming Oscar, Zynga, the social-gaming company, went public on Dec 16, 2011 and closed at $9.5/share.  It closed on $10.49 on Tuesday, and so far its shares have stayed its course.

Zynga's social games are wildly popular, and the company now has a market capitalization of ~7.5 billion.  As the US government might have paved the way for internet gaming, Zynga might be pondering on entering the online gaming market as it already has the highest number of poker players through its Zynga Poker game.

If Zynga can overcome the legal hurdles and become a major player, this could be an even more lucrative market for Zynga, and will certain boost its profits and share price.

Pandora Media: (NYSE: P)

Pandora Media operates an online music streaming business, and generates its revenue through advertising between songs.  It went public on Jun 15, 2001, and closed at $17.42 on the first day of trading. Pandora is now trading at $13.19/share, and has a market capitalization of ~$2 billion.

Pandora's business model is well understood, but its audiences are much less connected to each other, and user loyalty is definitely not as high as that of Facebook or LinkedIn, where network effect is much better exploited.  It is also facing increasing competition from Spotify, a music streaming service which allows user to select the songs they want to hear.

RenRen: (NYSE: RENN)

RenRen is a Chinese social networking company modeling after Facebook, much like how Baidu (NASDAQ: BIDU) modeled after Google (NASDAQ: GOOG).  The company went public in May of 2011, and closed at $18.01/share on the day of IPO.

Like most Chinese internet companies, its shares have been slashed significantly last year, as investors started to flee away from Chinese companies listed in the US. RenRen is now trading at $5.55/share, but still spots a market capitalization of ~2 billion.  RenRen also faces stiff competition from Tencent on social networking, the Chinese internet giant that operates the QQ network.  

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Daniel Ho is the founder of 10xreturn.com, a financial portal providing financial information and market statistics for investment professionals.

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