Facebook doesn’t seem to be casting a long shadow over social networking stocks.
Before Facebook went public, analysts fretted that the industry would rise and fall in line with shares of the social network. So far, investors seem to be assessing Facebook’s peers on their own merits.
On Tuesday, shares of Facebook were trading at less than $29, roughly 24 percent below their offering price. Since Facebook’s debut, rivals like LinkedIn, Pandora and Groupon are down only modestly or even up over the same period.
Investors, in part, seem to be digesting Facebook’s future. Just days before the company’s initial public offering, Facebook raised red flags in a regulatory filing about its ability to make money off mobile advertising. Around the same time, the company also warned analysts on conference calls about its revenue growth, prompting some banks to cut their expectations.
It’s not helping that Facebook sold a larger portion of its company in the offering. In comparison, companies like LinkedIn have a relatively small float, a scarcity factor that can help support the stock.
But those issues don’t fully explain the differences in performance.
Even valuations aren’t entirely to blame. While investors are wary of Facebook’s fundamentals, many rivals’ stocks are far more expensive.
On most measures, shares of LinkedIn are more expensive than those of Facebook. For example, LinkedIn, which has smaller profit margins than Facebook, trades at 671 times earnings. Facebook is selling for 75 times profit.
Instead, Facebook seems to have gotten swept up in a tide of negative sentiment that its peers have managed to sidestep. At some point, stock slides don’t necessarily have to make fundamental sense. If investors get spooked, market psychology can prove to be a powerful force.
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