SOURCE: Five Star Equities

Five Star Equities

May 01, 2012 08:20 ET

Recent Losses From Social Media Companies Raise Concerns Over Future IPOs

Five Star Equities Provides Stock Research on Groupon Inc. and Zynga Inc.

NEW YORK, NY--(Marketwire - May 1, 2012) - Social media stocks have been becoming increasingly popular among investors in 2012. They have even garnered enough attention to launch their own ETF; the Global X Social Media Index ETF (SOCL) which is up nearly 18 percent year-to-date. Despite the growing popularity, critics are skeptical of the future of social media stocks after three companies who went public in the past year have traded below their initial IPO price. Five Star Equities examines the outlook for social media stocks and provides equity research on Groupon Inc. (NASDAQ: GRPN) and Zynga Inc. (NASDAQ: ZNGA).

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Pandora, Zynga, and Groupon, which were expected to "wow" investors, have all seen their shares dip below their initial public offering pricing. Pandora, which had an IPO pricing of $16 in June, closed at $8.88 Friday; Zynga, priced at $10 in December, closed at $8.52; and last but not least Groupon, which went public in November at a price of $20, saw shares fall to $11.98 at close Friday. The recent losses from the last batch of social media companies have raised concerns for the upcoming IPO of Facebook. "There is some Facebook skepticism for the first time from IPO investors, mostly big mutual funds, having gotten burned badly on buying into the offerings of Pandora, Zynga and Groupon," said Sam Hamadeh, CEO of PrivCo, a research firm.

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Groupon previously had announced a revision of its reported financial results for its fourth quarter and year ended December 31, 2011. The revisions resulted in a reduction to fourth quarter 2011 revenue of $14.3 million. The revisions also resulted in an increase to fourth quarter operating expenses that reduced operating income by $30.0 million, net income by $22.6 million and earnings per share by $0.04.

Zynga, the world's leading provider of social game services, last week announced financial results for the quarter ending March 31, 2012. The company reported a net loss of $85.4 million for the first quarter of 2012 compared to net income of $16.8 million for the first quarter of 2011. $133.9 million of stock-based expense was included in the net loss for the first quarter of 2012 compared to $14.5 million of stock-based expense included in the first quarter of 2011.

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