Is Facebook’s Poor Stock Performance Dragging Other Social Networks Along With It?

By Devon Glenn 

Facebook’s stock was down 9.81 percent as of Tuesday afternoon, sending ripples of disappointment through the investment community as shareholders are trying to figure out what to do now that the world’s largest social network has failed to deliver massive returns in its first few weeks on the stock market. Meanwhile, smaller networks like Groupon, Yelp, and Zynga have also felt the pain of plummeting stock. Is Facebook to blame?

Reuters reporter Alistair Barr speculates that investors got spooked when Facebook underwriter Morgan Stanley’s consumer Internet analyst, Scott Devitt, announced to major clients that he was reducing his revenue forecasts for the company just before Facebook went public.

As for Groupon, Yelp, and Zynga, the results have been encouraging this quarter, showing an increase in revenue and a decrease in net losses as the companies went public and expanded into new markets. What’s happening?

Groupon: Down 1.92%

The local deal site reported an 89 percent increase in revenue year-over-year for a total of $559.3 million.  Groupon spent less money this quarter, showing an operating income of $39.6 million, compared to a $117.1 million operating loss in the first quarter of 2011.  The viral nature of the service relies, in part, on users sharing their deals with friends on Facebook.

Yelp: Down 6.16%

Revenue for the local business revue site increased to $27.4 million in the first quarter of 2012, which is 66 percent higher than its first quarter in 2011.  But the company also had a net loss of $9.8 million, compared to a net loss of $2.8 million this time last year, due in part to the cost of expanding into international markets. Analysts who were expecting a loss of 15 percent per share were surprised with a 31-cent loss instead, according to a Bloomberg survey.  That’s not necessarily Facebook’s doing. Although Yelp users can connect through Facebook to join the site, the company reported in a forward-looking statement that Yelp primarily relies on Google, Yahoo!, and Bing for referral traffic. Google’s stock is up slightly today at 0.22 percent.

Zynga: Down 7.97%

Analysts polled by Thomson Reuters were only expecting the gaming company to bring in $317 million in sales, according to CNN, but the company brought in $329 million for the first quarter of 2012. Although Zynga reported a net loss of $85.4 million in the first quarter of 2012, compared to net income of $16.8 million in the first quarter of 2011, much of that could be attributed to stock compensation costs associated with the company’s stock market debut. Advertising and transaction fees from Zynga account for 15 percent of Facebook’s revenue, compared to 19 percent this time last year. The company has been weaning itself off Facebook slowly with a new gaming platform.

No one wants to see a tech bubble like the dot-com bust at the turn of the millennium, but it’s hard to discredit companies that are bringing in so many zeroes and creating jobs, especially in the wake of an economic downturn.

But to be on the safe side, the Russian social network VKontakte has delayed its IPO, and it wouldn’t be too surprising if other companies did the same.

Do you think Facebook is affecting other networks’ stock prices, and if so, do you think the investors are justified?

Note: Stock percentages are only accurate as of the time of this post. Our apologies if they have changed by the time you read this.

Image by Olivier Le Moal via Shutterstock.