Chicago, IL  9/25/2012 (BasicsMedia)  —  Social Media Stock Update: How Early is Early for (Z, FB, P, GRPN) and other Web 2.0 names which are attempting to survive in the early stages of Social Media stock valuation.  I knew it was early when I herad chatter about stupid stuff like Social Equity, and I even did some consulting for a guy who called himself a “Social Equity Officer” and he was convinced that Social Media could be converted into some sort of Social Equity.  I think he is in jail now..or soon will be for being a moron.

 

But this begs the question about which of the social media stocks are too early and which ones are viable at all.  I looked at some smart guys out of California who wrote about (Z) today who break down Web 2.0 stock criteria this way:

 

Investible Web 2.0 companies have all of these critical success factors:

1)   A new and disruptive way to use internet technology to meet a real market need

2)   Exponential revenue growth driven by viral buzz, solidly founded on genuine customer loyalty

3)   Soaring revenues free of heavy expense models – not dependent on overhead-heavy sales department headcounts

4)   Revenue transparency throughout the complete business model

(shamelessly borrowed from Andrew at Stock Lemon)

 

Having looked at that I would say that all these 4 names will have issues in the early part of this cycle ( which can last 3 years)…..and like the foolish players who think that it will always be the late 90’s where jumping on an equity bandwagon was as easy as throwing darts at a business section, those days are long gone.

 

The days of comparing subscribers/members reminds me a bit of what I learned from Steve Case when he was touting AOL to our HedgeFund in 1995 before it exploded.  he said ” All you need to do is watch the sign up numbers” everything else will take care of itself…

 

I think that is also true for the Social Media markets of today, but the other factor are the shares coming available (Trade-able shares) which can keep a lid on the stock (example FaceBook) for a year or two.

 

This entire group needs to be set aside and observed as the multiples come down and the members go up……the other classic mistake…….. is aquisition and spending so much time trying to integrate another biz model into your own (for the sake of subscribers or acreative possibilites) that the C-Level guys take the eyes off the ball and lose the investor base.

 

Take a seat and watch…

 

Disclaimer:  We have no position in any stock mentioned here nor are we paid to write about the.

DISCLAIMER: This content is neither an offer nor recommendation to buy or sell any security. We hold no investment licenses and are thus neither licensed nor qualified to provide investment advice. The content in this report or email is not provided to any individual with a view toward their individual circumstances. While all information is believed to be reliable, it is not guaranteed by us to be accurate. Individuals should assume that all information contained in our newsletter is not trustworthy unless verified by their own independent research. Also, because events and circumstances frequently do not occur as expected, there will likely be differences between the any predictions and actual results. Always consult a real licensed investment professional before making any investment decision. Be extremely careful, investing in securities carries a high degree of risk; you may likely lose some or all of the investment.