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'China's Facebook' Is Ready to Break Out

Stocks in this article: FB RENN UBS C KCG

By Dave Goodboy

NEW YORK ( TheStreet) -- "They need to get rid of founder Mark Zuckerberg. Facebook (FB) may have a chance if a talented leader is appointed; otherwise it's a no-go. The guy is a master at the start-up, but he needs to turn the reins over to someone else to run the company," exclaimed an under-the-radar Internet insider with whom I recently chatted in South Florida.

His words proved semi-prescient as the heavily anticipated Facebook initial public offering has gone down in history as providing the worst return of any large IPO in the past decade.

The massive $16 billion IPO was fraught with issues from its launch on May 18. A lack of communication at Nasdaq appears to be the initial trigger of the strife, causing the IPO to be delayed. Some investors complained that their orders weren't being filled or they were getting shares at a much higher price than they wanted.

The confusion resulted in about $115 million in losses for the four major market-makers in the IPO: Knight Capital Group (KCG), Citigroup's (C) Automated Trading Desk, Citadel Securities and UBS (UBS).

The exact steps taken by Nasdaq officials on the IPO's first day are still unclear. However, the losses suffered by investors and the market-makers are very real. This has triggered a rash of shareholder lawsuits against the social media behemoth.

Obviously, it wasn't Zuckerberg who caused the initial confusion. But time will tell if he can help solve the problems or if a new leader needs to take over.

Either way, it looks like it's going to be a long and revealing road to get to the bottom of exactly what went wrong with the IPO. But one thing is for certain: Facebook's flop pulled down the entire social media sector, potentially setting up a great buying opportunity for savvy investors.

The Facebook of China

While the lawyers are sorting out Facebook's troubles, otherwise successful social media companies have been knocked down into bargain territory. One of these is Renren (RENN).

The so-called Facebook of China nearly doubled in 2012 prior to the Facebook flop. As you can see, shares plunged into the $4 range in sympathy with the Facebook selloff. However, the price appears to have stabilized and may be beginning to climb higher.

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