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Facebook's lackluster debut hurts other social media stocks

Zynga, Yelp, Groupon and LinkedIn shares tumble on Facebook's first day as a publicly traded company.

May 19, 2012|By David Sarno, Los Angeles Times
  • Anticipating that Facebook would have a big day, investors loaded up on social media stocks in recent weeks.
Anticipating that Facebook would have a big day, investors loaded up on… (Stephen Lam Getty Images )

Wall Street didn't get the Facebook effect it was hoping for.

In a sign that the social networking giant may have already become a bellwether for its sector, shares of virtually every social media company sank Friday with Facebook Inc.'s lackluster debut on the stock market.

Anticipating that Facebook would have a big day, investors had loaded up on social media stocks in recent weeks. Many backpedaled when Facebook's shares barely budged, rising just 23 cents, or less than 1%, from the initial public offering price of $38.

"They were playing for a pop and didn't get it," said Michael Pachter of Wedbush Securities. For instance, he said, "the guys who own Zynga were hoping it was going to go up to $9" from about $7.50 last week. "When it didn't, they dumped it."

LinkedIn Corp.fell 6%.Groupon Inc.was down 7%.Yelp Inc.dropped 12%. And Facebook's gaming partner Zynga Inc. took the worst hit of all, shedding more than 13% of its value to close at $7.16.

"These social Internet companies trade together," said Herman Leung of Susquehanna Financial Group. "So the market is probably asking, 'Who else could be at risk?'"

The small group of social media companies all went public in the last 12 months. Most of them have had a troubled tenure on the open market, disappointing investors and seeing heavy price drops.

The exception is LinkedIn, which enjoyed a more than 100% spike on its own first day of trading and had experienced a steady rise over the last six months, nearly doubling since November. But even the relatively solid shares of the professional social network were not immune to the side effects of Facebook's disappointing performance.

Like the other social media firms, shares of Zynga rose substantially in the days before Facebook's IPO. Zynga's stock price had been up more than 10% since Monday, but as Facebook went on the trading block, those gains vanished and the stock tumbled.

Zynga dropped so quickly Friday that trading of its shares was halted twice. A stock triggers a Nasdaq "circuit breaker" when it loses more than 10% of its value within five minutes.

During the day, Zynga dipped to $6.40 a share, the lowest point it reached since it began trading in December.

Zynga, the maker of popular Facebook games

including FarmVille and CityVille, is highly dependent on the social network for its revenue, and the relationship goes both ways, with Facebook pulling 12% of its 2011 income from payments its users made to Zynga.

Yelp also hit an all-time low during trading Friday.

The local review service has little explicit connection to Facebook in the way that Zynga does; at one point, it competed with Facebook to offer daily deals.

Yet investors still bid up Yelp shares nearly 7% this week, a hopeful bump for a stock that had lost more than a quarter of its value since it hit an all-time high in late March.

david.sarno@latimes.com

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