Yahoo! Inc. (YHOO), Facebook Inc (FB), Google Inc (GOOG), LinkedIn Corp (LNKD): Can These Web Intensive Stocks Help You Get Rich?

Facebook unveiled a tool to search information available on its social network of over 1 billion users, by creating a substitute to services already provided by Google, LinkedIn Corp (NYSE:LNKD), and Yelp. According to Mark Zuckerberg, the Chief Executive Officer of the company, graph search allow users to discover photos, people, interests and places. The company has described how the service could be used by recruiters to discover possible hires and by members seeking dating partners. Once the service is fully developed and launched, it will offer users with an incentive to spend less time on other platforms. According to Susan Etlinger, an analyst at Altimeter Group, there is a lot of pressure on Facebook to increase and expand its monetization efforts.

Zuckerberg said that he would “love to work with Google,” but could not succeed in entering into an agreement with Google in collecting and using people’s data. The tool would help the users of Facebook in finding out information more efficiently; the results would be based on data already accessible to users based on their preferences.  Meanwhile Danny Sullivan, founder of the Search Engine Land technology blog, said that Google is moving to Facebook’s turf with its own social-networking service, Google+, which was unveiled in 2011.

Though these companies are maneuvering to stay ahead of each other, their valuations are often quite high:

Ticker Company P/E P/S P/FCF EPS Growth Next 5 Years
MSFT Microsoft 15.39 3.22 11.36 8.4%
YHOO Yahoo 6.39 4.98 NA 13.9%
GOOG Google 24.42 5.21 19.59 14.3%
YELP Yelp NA 10.1 NA 18.5%
FB Facebook 2832 13.26 178.94 29.2%
LNKD LinkedIn 856.11 17.98 NA 61.3%

Facebook, LinkedIn, and Yelp trade at incredibly high price-to-sales ratios and are unattractive on this basis alone. Further down the price-to-sales spectrum, Google has a high price-to-earnings ratio. Yahoo! temporarily has a low price-to-earnings ratio, but its forward P/E is forecast to be 17.5. This makes it less attractive than Microsoft on the basis of valuation.  However, Microsoft is not that cheap, especially when compared to the average 14 P/E ratio of the S&P 500.

The market leader in search and web use, Google, is too expensive to warrant consideration. Yelp, Facebook, and LinkedIn are even more expensive. Neither Yahoo! nor Microsoft are trading at valuations that are cheap enough to warrant betting on either company competing in a contentious industry.

The article Can These Web Intensive Stocks Help You Get Rich? originally appeared on and is written by Bill Edson.

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