The company’s sales for the fourth quarter were over the $40.3 million average analyst collected by Bloomberg. During 2011, the company reported a net loss of $9.05 million or 56 cents per share, on revenue of $24.9 million. The company expects to report revenue of $44 million to $44.5 million during first quarter 2013. During the first quarter of 2012, sales were $27.4 million.
Total reviews on the company’s sites, where customers rate and remark on local businesses from hair salons to insurance agencies and doctors’ offices, grew by 45% to over 36 million at 2012. The company also said average monthly unique visitors increased by 31% to about 86 million. It also carved out a niche for itself in local advertising, a major revenue source, vying for a stake in a local online advertising market that would increase to $38.1 billion in 2016 in the US, from $21.2 billion in 2011. Revenue from local advertising has enhanced from 87% in the fourth quarter to $33.9 million or 82% of total sales.
According to Stoppelman, the company’s mobile applications were used on approximately 9.2 million unique devices on average per month, and about 46% of the total traffic comes from applications on smartphones and tablets.
Threats From New Entrants
Any well-known social media companies could be blind-sided by new entrants. Relationship Science, which was established by Kenneth Langone and Henry Kravis, is launching a professional-networking service that uses Internet research to connect elite decision-makers. It would map client’s relationships with over 2 million influential people in the fields of business, finance and nonprofit organizations, assisting them to create deals that sell products and raise money. The company aims to earn an edge over LinkedIn and Facebook by not depending on social networks or user-inputted content. The service would reduce the Web for related information on business leaders and their relationships, and use that research to display how people connect.
According to Neal Goldman, the founder of Relationship Science, “As someone who has raised capital, extensively engaged in direct selling and built mutually productive partnerships throughout my career, I continuously grasped for ways to better leverage information and my relationships.”
Lofty valuations
These stocks are either unprofitable or have huge price-to-earnings multiples:
| Ticker | Company | P/E | P/S | P/B | EPS Growth Next 5 Years |
| ZNGA | Zynga | NA | 1.99 | 1.4 | 21.0% |
| RENN | Renren | NA | 2.63 | 1.08 | 20.8% |
| YELP | Yelp | NA | 10.07 | 8.38 | 18.5% |
| FB | 2893 | 13.54 | 5.84 | 29.2% | |
| LNKD | 846.11 | 17.77 | 19.02 | 60.1% |
Price-to-sales multiples of 10 or higher are very, very hard to understand. For this reason alone I would stay away from Yelp, Facebook Inc (NASDAQ:FB) , and LinkedIn. Renren and Zynga might actually be cheap and are worthy of more research.
Conclusion
The only social media stocks trading at interesting price multiples are Zynga and Renren. At current price levels stay away from Yelp, Facebook, and LinkedIn. Even thought they may post excellent growth, they are nowhere near acceptable valuations.
The article Can You Play These Social Media & Gaming Stocks for Profits? originally appeared on Fool.com and is written by Bill Edson.
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