Hatred for Social Media Stocks Is Getting Extreme: Time to Buy?
Everyone is in love with the wrong name in the group: Yelp.
Frankly, I prefer the long-term business model for Zynga, too, but it's not one I love. Digital/online gaming for a low price is going to be around for quite some time. But if one looks at the China market, it's a tremendous guide. This business has mysterious ebbs and flows. Moreover, this space is very economically sensitive and not recession proof, which has been long espoused.
Since this is the best of breed in the group, I've been on it first and I'm also not losing a bit of sleep over Facebook's stock action. People simply don't understand this name, even though they think they do. As I have written in the past, they are focusing on the wrong metrics. Again, Google = numero uno in future mobile ad domination. Facebook = number 2, which will still be exceedingly valuable. It's more complicated than that, but that's good enough for now as I've offered plenty other future catalysts and valuation justifications. And I will savor any price entries below $19.50.
At first blush, I'm now leaning to this name as the potential next in line after Facebook in the social space. The caveat is that after Facebook, I think the quality drops off a lot. And, yes, that's partly because Twitter isn't public yet. And, yes, now my economically sensitive vibes/thesis from above kicks in. Groupon's offerings are very tied to people's willingness to spend some frivolous money. In fact, I'd say that Groupon's stock will likely be viewed as a hyper-cyclical name in time. During upswings, it will probably blow numbers out (see Priceline). And visa versa, in even mild downswings.
Frankly, I wish I had waited and not entered any of this, because I think this is the day I would have started buying these shares. In fact, it looks like a firm bottom is now in. For emphasis, this company has about $1.6 billion in net cash against a $2.3 billion market cap. Unless you believe that it will never have a hit game again, this is already in deep value territory. So why don't I have Zynga behind Facebook, and ahead of Groupon? To be honest, I view the long-term growth potential of Groupon as superior. And the fact that Google is no slouch when it comes to evaluating M&A, and it was willing to go to $6 billion for this company. That is notable and should not be lightly overlooked.
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