Most Famous Social Network Investments

Posted on 6th Apr 2013 @ 2:18 AM

                                                                                   Most Famous Social Network Investments

Social media investment was a red-hot theme on Wall Street and in private equity markets during 2011, but as the year winds to a close it remains unclear whether these risky startups that investors have been throwing money at are smart investments or sucker bets. Most likely these publicly traded social media startups are both--that is, some will grow into highly successful businesses, while others fade into the rubble of corporate failure like Pets.com and other dot-com failures of the 1990s. For now, it's worth looking back at what happened to the social media startups that went public by selling stock in IPOs during 2011 to see how they fared.

Zynga was the Wind Gauge for Social Media Investment in 2011. The last social media company to go public in 2011 was Zynga Inc., maker of FarmVille and other popular Facebook games, and its debut was widely seen as a barometer of changing fortunes for social media investment. Zynga's stock was priced at $10 share in its IPO debut on Friday, but those shares had dropped 5 percent to $9.50 by the time the market closed on the first day of trading. Now Zynga's failure to enjoy a first day price pop suggests the wind may have shifted for these startups. After more than a year of a year of excitement in venture capital and private equity markets, social media startups appear to be falling out of favor with investors.

There were some successes, for sure. Among the social media firms that went public in 2011, LinkedIn Corp. enjoyed perhaps the strongest success throughout the year, despite the many business challenges it disclosed when it filed to go public. By mid-December, its share price stood at $66, up nearly 50 percent from when it went public at $45 back in May. The other startup holding onto significant gains was high-profile social couponing service Groupon Inc. Groupon, one of the hottest social shopping companies, went public in November at $20 a share and closed Friday at $23, still up 15 percent. 

But other social media companies that went public in 2011 remained significantly under water from their IPO price as the year wound down. Internet radio company Pandora Media went public in June at $16 a share and closed Friday at $10.55, down 34 percent. Another Internet company that whose shares went into freefall was Demand Media Inc., which creates online content at eHow and also owns social media services such as the Pluck for building communities online and CoverItLive for conversations about real-time events. Demand Media was one of the first Internet companies to go public in 2011. Its shares were initially priced at $17 in January, but fell 59 percent to close at $7.05 on Friday. 

For much of the year, shares in social media startups tracked the broader market, rising with investor hopes through August and then turning around and declining for most of the fall. The fall of social media shares, though, was even steeper than that of the broader American stock market, suggesting these are riskier investments.

It may well be that Zynga's lackluster IPO in December is a sign that the much talked-about social media investment bubble is hissing as it starts to lose air. Zynga, after all, has widely been seen as the king of social media games, one of the hottest areas in social media.