Investing in Social Media a Big Gamble…or is it? No, no. It is.
Social media continues to be the darling of modern media. Now, with Facebook proving that big networks want to value themselves in the stock market, all eyes are evaluating the purpose of investing in social media, and the risk of wealth. As of date, social media properties going public isn't brand new. Yelp, Groupon, Linkedin, and Facebook all have done it (among others). And, with close to a year in the water, all have lost...big time.
The New York Times took a close look at how these public stocks have fared over the last year. The results, are staggering. But, in reality, not surprising. Anyone who thought investing in a social company that harbors no business model and contains no regular way of gaining revenue needs to have their head examined. From the NYT:
Over the past year, Internet companies like Groupon, Zynga and Yelp made their public debuts. Facebook followed in May at $38 a share, instantly giving the newly minted public company a valuation of nearly $105 billion.
Facebook hasn’t closed above $38 since....This week marked the end of the lockup period, which barred insiders from immediately selling their shares, and Facebook shares hit a new low, slumping below $20 a share, just over half the offering price.
Other social media companies have fared even worse.
Like Facebook, the Internet discount coupon site Groupon increased its offering price and number of shares just before its public debut last November. After rejecting a $6 billion takeover bid from Google in December 2010, Groupon shares closed at $26.11 on its first day of trading, up from its $20 offering price, giving it a market value of $13 billion.
It has been pretty much downhill ever since. This week, Groupon shares were hovering near $5, a 75 percent decline from its offering price, giving it a market capitalization of just over $3 billion, barely half what Google offered.
Zynga, a company that makes online social games, went public in December at $10 and dropped 5 percent its first day. Although it traded above $14 a share as recently as March, this week it was below $3, down 70 percent.
For those of you too lazy to read: Facebook hasn't touched the price they opened at. Groupon is going for less than $5 a share, and Zynga is under $3. If you bought Groupon at the price when it closed on its first day of $26, your stocks are pretty much worthless. For some reason, investors are still holding strong, as the numbers behind users and 'projected revenue' are still enticing.
But, the reality remains, and social media offers nothing to nobody. It's the emperors new clothes, or more accurately put by the NYT, the Network Effect.