Facebook Filing Lifts Zynga, Other Recent IPOs

Published February 2, 2012 10:45PM (EST)

LOS ANGELES (AP) — Facebook's long-awaited IPO filing lifted the stocks of many Internet companies, including recent laggards Zynga and Groupon. But analysts said the halo effect may fade, because some companies basking in Facebook's glow just aren't as financially sound as the world's largest social network.

Zynga Inc. was getting the best ride on Facebook's coattails Thursday. Its stock jumped nearly 17 percent to close at $12.39 — for good reason. Almost all of Zynga's revenue comes from addictive games like CityVille and Mafia Wars that are played on Facebook. The social network's initial public offering documents revealed, for the first time, that 12 percent of its $3.7 billion in revenue last year came from Zynga.

Some of that revenue came from the 30 percent "toll" that Facebook takes on in-game purchases, the rest came from ads that Zynga bought on the site.

"It shows (Zynga's) an important partner, they're going to participate in Facebook's growth," said Wedbush analyst Michael Pachter.

Baird analyst Colin Sebastian said the filing suggests there could be upside to his forecast for Zynga's fourth-quarter earnings, which will be announced in two weeks.

He added that other Internet companies were justifiably trading higher partly because Facebook reported ad revenue growth of 69 percent in 2011.

"It shines a spotlight on the Internet sector," Sebastian said. "There's a lot to be excited about still among Internet stocks."

Daily deals site Groupon Inc.'s stock rose 7.4 percent to close at $23.08, while jobs networking site LinkedIn Corp. shares rose 6.4 percent to close at $76.98, even though their revenues aren't tied to Facebook.

Online radio service Pandora Media Inc.'s stock rose 3.3 percent to $13.32 and American depositary shares of Chinese social networking company Renren Inc. jumped 8.2 percent to $5.42.

All five companies made their stock market debuts last year. Only LinkedIn's stock has traded consistently above its IPO price.

Maxim Group analyst Echo He said Renren is benefiting partly because it is one of the few Chinese Internet stocks that trades in the U.S. Even with Thursday's 8 percent bump, the stock is less than half of the IPO price of $14 set last May.

Renren has less than 5 percent of Facebook's 845 million-strong user base, isn't growing as fast, lacks market dominance in China, and may barely be profitable this year, compared to Facebook's hefty 27 percent net income margin, she said.

Investors "think maybe this name could get some benefit," He said. "It probably won't last long."

Still, Facebook's in-depth filing was well-received and even included a manifesto-type letter from founder Mark Zuckerberg outlining the company's mission to "make the world more open and connected."

The prospectus seemed to wash away some of investors' trepidations over the unorthodox accounting methods once used by Groupon, or the surprising 5 percent dip that Zynga's stock experienced on its first day of trading.

Gordon Tucker, a managing director at Protiviti, a company that helps companies go public, said the filing and Facebook's healthy financial results injected a sense of confidence into the social media space.

"This social media sector is a real sector," Tucker said. "Maybe people are saying, let's dig back in and have a look."

By Salon Staff

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