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3 Web 2.0 Companies That Are Buys: Zynga Inc (ZNGA) and More

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Web 2.0 companies have had a good run in the last three months. While these stocks are still trading below their IPO price, this renewed investor interest makes them interesting long candidates. The following table summarizes price appreciation for these stocks over the last three months

Company Name Year to Date Appreciation 3 Month Gains
Facebook (NASDAQ:FB) 2.81% 36.36%
Groupon (NASDAQ:GRPN) 8.84% 96.65%
Zynga Inc (NASDAQ:ZNGA) 37.28% 54.28%

Facebook Inc (NASDAQ:FB)

Facebook recently reported strong 4Q12 results driven by user growth, new product offerings, and new ad formats. Mobile, in particular, presents a good opportunity for Facebook. Mobile usage constitutes ~50% of DAUs (Daily Active Usage) for Facebook, while just 23% of its revenues. As Facebook tries to bridge this gap with its mobile app and Facebook exchange platform, there is a good chance that mobile revenues will increase substantially from their current levels. Facebook, with its position as world’s leading social networking website, also remains on a sweet spot as advertisers continues to realize increasing importance of “social” context in online advertising. Apart from the company specific factors, the broader macro trends in online advertising remains positive, as is evident from better than expected results from both Facebook and Google Inc (NASDAQ:GOOG). I believe that Facebook’s stock will continue its uptrend and recommend buying it.

GrouponGroupon Inc (NASDAQ:GRPN)

Groupon is a play on increasing migration of local commerce to online channels – a trend which will likely continue for the next several years. The company turned profitable last year and is expected to grow its EPS by 41% in 2013. I believe the company can see several positives in 2013, like bottoming of the local deal business in North America and improvement in European end markets. The company will also benefit from increasing mobile and app usages. In addition, Groupon goods also provides another growth driver for the company. Groupon is currently trading at a valuation that is ~50% lower than what Google offered before it went public. I won’t be surprised if Groupon receives a buyout offer in the near future. Another thing which makes me bullish on the company is Tiger Global Management’s huge bet on the company given they hold 65 million shares of Groupon.

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