7 stocks feeding off Facebook debut
A few less-well-known names could join the big techs at the trough.
By Sean Udall, Minyanville.com
You may not have got in on Friday's long-awaited initial public offering, but here are seven other companies that stand to benefit from the "Facebook effect."
I've been table-pounding about Google for many reasons -- including its Chrome, Docs, Search, Cloud, Android, valuation, etc. -- but certainly also as a strong play, given the Facebook (FB) catalyst.
The stock recently jumped $15 in early trading, and I think much of the action is due to Facebook's increasing its number of shares allocated.
This effectively boosted the Facebook valuation from the $100 billion area to around $125 billion, and I now think the market is thinking what I've been thinking for some time: Facebook is going to zoom past the $150 billion mark and possibly hit something closer to $185 billion the first day.
I've penned a ton of work on Google, and not that it needs another valuation catalyst, but if Facebook trades at $200 billion, then Google should trade at or above $300 billion. Or, said another way, at 6.5 times sales versus Facebook at 50 times sales.
I covered my Microsoft short largely because of the coming Facebook IPO. Mr. Softee is probably the easiest call for a little bit of upside on a big Facebook run.
Simply put, Microsoft bought a nice chunk of Facebook years back at a valuation under $10 billion, so Microsoft is set to make a very nice chunk of change on this investment. (Microsoft owns and publishes Top Stocks, an MSN Money site.)
Nearly everyone knows that Zynga is a primary benefactor of the Facebook IPO, and so far the most successful company at monetization from the Facebook platform.
I can see strong potential catalysts for the FarmVille creators, and also feel it could see a strong delayed reaction move to a big rise in Facebook. However, I have not personally been able to pull the trigger on the long side here.
Electronic Arts (EA)
Personally, I'd rather own this cash-rich and very undervalued gaming franchise instead of Zynga. It's sporting just a $4.5 billion valuation versus $6.5 billion from Zynga and has a quarter of the market capitalization in net cash.
I also very much like EA's strong growth in digital revenues and feel it could find ways to monetize gaming on several social platforms, including Facebook's.
Fusion IO (FIO)
This stock has been hit by a myriad of negative news items and has been lumped in with what I deem as too many weak-handed, hot-money players. But I can't find too many companies doing as much direct business with Facebook as Fusion IO.
In recent quarters, Facebook has been Fusion's number one or two customer; Apple is the other. Facebook relies on Fusion's storage memory platforms for data decentralization to manage its ever-growing mountain of data, the lifeblood of revenue production for the company.
Does anything justify Apple's valuation in the $500 billion and beyond range more than Facebook trading close to or above $200 billion?
The more Facebook can justify its data value proposition to advertisers, the more it can sell to those advertisers. ComScore provides digital analytics solutions that help companies do just that. The company combines deep insights into consumer behavior with information regarding usage of their online properties and those of their competitors.
Additionally, comScore has intensive analytics on mobile networks, which Facebook has said is the next major growth frontier, as well as a primary future risk for the company.
In summary, I don't feel a huge need to invest in or trade the Facebook deal. There are plenty of stocks that are currently trading at compelling valuations and will trade much stronger if the Facebook stock goes absolutely to the moon. If that happens, I will simply sit back and let Google and other positions work as tertiary plays.
However, if there's enough fear or negativity and Facebook opens flat or just modestly higher, I will be taking a stake, as I think the company is poised to put in substantial growth for an extended period of time and trade closer to that $200 billion valuation level.
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