The coming Facebook Inc. initial public offering -- made official on Wednesday -- continues to have a big impact on other social media stocks on Thursday. LinkedIn Corp. was up 5.6 per cent in midday trading, Groupon Inc. was up 7 per cent and Zynga Inc. was up an astounding 16.8 per cent.
These three stocks debuted in 2011 during the first round of well-publicized social network IPOs , and were seen then as warm-up acts to Facebook. Early gains in those stocks were often attributed to slight demand -- in that, investors who wanted in on the social networking trend had few names to choose from, and share floats tended to be relatively thin.
Now, with Facebook shares expected to start trading in the spring and providing an alluring alternative to other social networking stocks, it may seem strange that the entire sector is benefiting. There could be a couple of reasons for this trend, though. For one, Facebook's IPO filing shows how integrated the sector can be. As the Wall Street Journal noted, 12 per cent of Facebook's revenue comes from Zynga, a company whose games are played on Facebook. That's a surprisingly high percentage and shows that Zynga's fortunes will rise with Facebook's.
For another, though, investors may have switched allegiances: Whereas Facebook was initially seen as the most enticing social media stock on the horizon, its growth rate may not be impressing investors. Revenue grew 88 per cent in 2011 over the previous year. While strong, it is lower that Zynga's growth and well below Groupon's.
The thing is, Facebook is no ordinary IPO. While many companies debut on the stock market with the promise of profits in the distant future, Facebook already earned $1-billion (U.S.) last year. The number of users is already at 845 million. That has led to some concerns about how much growth this company has in the tank, especially with rival social networking companies already thriving in places like China.
Perhaps investors are siding with promise over delivery.