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Forget Facebook: Four Social Media Stock Plays


There's a whole economy in and around social media that investors should consider.

MINYANVILLE ORIGINAL It's official: Facebook (FB) is public and social media is a high-growth sector in the stock market.

Instead of being evaluated on revenues or balance sheet metrics, companies in this sector are often evaluated on their revenue potential or number of loyal users, such as the zero-revenue yet $1 billion-valuation Instagram.

Zynga (ZNGA), the social game provider, is an example of a company that makes the majority of its money "inside" Facebook. The FarmVille creator derives "substantially all" of its revenue from Facebook, according to its SEC filings. Its games are also available on Zynga, Google+, Tercent, Apple iOS, and Google Android.

Another company in and around the Facebook economy is Izea (IZEA), which bills itself as a social media sponsor, makes its money inside and outside Facebook. The company hooks up bloggers, tweeters, and Facebook posters with advertiser who will pay them to reach out to their networks. Izea trades at a price-to-sales multiple of approximately one (meaning its market capitalization is equal to its annual revenues of approximately $8.3 million). Contrast this ratio with Facebook's price-to-sales ratio of over 20. See: How One Billion Social Media Addicts Can Make Money While Still Wasting Time.

Millennial Media (MM) is another way to invest. Millennial Media provides tools which enable marketers to run cost-per-click ad campaigns across thousands of sites. Millennial is particularly strong in mobile advertising, an area in which Facebook seems to be struggling. This small-cap stock has a market capitalization of around $950 million and a price-to-sales around nine. Although higher than Izea's, Millennial Media's nine is still lower than Facebook's 20.

Velti (VELT) is another provider of mobile advertising services. Velti provides companies with tools to advertise on mobile devices and analyze the effectiveness of their advertisements. Velti is currently trading at a reasonable price-to-sales multiple of two. Valued at this multiple, this mobile advertising technology company has a market capitalization around $370 million.
No positions in stocks mentioned.
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