graph social media

Facebook | Missing out on social media stocks

Matt Krantz, USA TODAY 6:36 p.m. EDT June 12, 2013

(Photo: Paul Sakuma, AP)
Facebook is noticeably absent from a social-media stock rally this year
Investors are finding unique reasons to continue avoiding Facebook stock
Analysts continue to feel the negativity toward Facebook is overdone
All the focus on Facebook is diverting attention from a powerful rally in the other social-media stocks.

The social-network giant is noticeably absent from a significant upturn in social-media stocks this year that’s including even the beat-up members of the group. Some of the most prominent social-media companies, ranging from professional networking site LinkedIn to review sites Angie’s List and Yelp to online gaming site Zynga, online coupon site Groupon and Internet stalwarts Google and Yahoo, are all soaring this year. The group, including Facebook, is up 42% on average this year.

But Facebook shares, in stark contrast to the social-media industry, are down 10% in 2013. Facebook’s absence from the rally is glaring since it’s occurring not only amid a social-media stock rally but a broad market rally. “There’s no escaping the reality. You can pick almost any point in time, and the stock has underperformed,” says Scott Kessler, analyst at S&P Capital IQ.

Analysts are pointing to a number of reasons why even a social-media stock rally can’t excite Facebook investors, including:

• Rise of competing social distractions. The fact other social-media stocks are gaining, while Facebook is not, shows how Wall Street sees Facebook’s dominance of social media as waning, says Kessler says. “Engagement with users on the margin is getting more challenging as sites like Twitter gain momentum,” says Colin Sebastian, analyst at Robert W. Baird.

• Unique problems with Facebook investors. Facebook is an entirely different company than a Yelp or Angie’s List so the fact it’s trading differently is no surprise, says Brian Wieser of Pivotal Research. But above all, Facebook stock is still smarting from its May 2012 IPO, which soured investors who don’t understand the company even further on the stock, he says. He says the company’s fundamentals are strong, including 38% revenue growth in the first quarter, yet investors aren’t paying attention.

• Fears of slowing growth. Investors are concerned Facebook will increasingly have difficulty growing as competition heats up and users are saturated, Kessler says. Analysts see the company’s long-term growth cooling to 26% in the next five years, S&P Capital IQ says.

But while the stock continues to suffer, Kessler says the negativity is overdone. He says growth in the near term will hang in between 35% to 45% and the company will find new ways to turn its user base into money. “The company has showed when it’s focused on monetization, they can do it,” Kessler says.

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