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In the Year of Facebook, Beware the Social Media Stocks

NEW YORK ( TheStreet) -- Most believe the stock/business story of 2012 is going to be Facebook -- specifically its rumored IPO which should come before the middle of the year. That's probably true. Yet, ironically, 2012 is also the year in which you need to protect yourself from other falling social media IPOs.

There have been a number of social media IPOs in the last year. With each new one, we get a five-minute segment on CNBC or Bloomberg TV debating whether there is a new Web bubble.

If the question "is this a new bubble?" is really "are all these new social media IPOs currently overvalued and set to drop pretty dramatically?" then I think the answer is yes and we're likely to see it occur in 2012.

The "other" social media IPOs that are bound to come under selling pressure in 2012 include: Groupon (GRPN - Get Report), LinkedIn (LNKD - Get Report), Pandora (P - Get Report), Zillow (Z), Zynga (ZNGA - Get Report) and Angie's List (ANGI).

Even though Facebook will continue to fascinate investors and media pundits as its IPO date draws closer, here are five reasons why other social media stocks are bound to falter in 2012:

1. They will become much more liquid in 2012 as their lock-ups end. These stocks all sold a smaller amount of equity in their IPOs (5% in the case of LinkedIn). They hoped to get their stock price up and anchored in the minds of investors which would help keep it there once the companies got the chance to really sell stock. For most of these companies, the chance to unload shares starts six months after their IPO. However, sometimes -- as was the case with LinkedIn recently -- a company that agrees to do a secondary offering of new equity after the IPO lock-up will agree that insiders will wait for an additional period before they can start to sell more of their shares. But, no matter what, there starts to appear a lot more of the company's equity on the market starting six months or so after an IPO. When this occurs, the stock price typically gets pulled back to earth.
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YOKU $27.54 0.00%
ZNGA $2.38 0.00%
Z $24.04 0.00%
ANGI $8.75 0.00%
GRPN $3.62 0.00%


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