Groupon Inc (GRPN) and More: Should You Buy These Social Media Stocks?

Though the stock has rebounded 67% from the 52-week low, I remain highly bearish on the company. As far as I’m concerned, there is 42% downside on the stock with cash at $2.03 per share. If the core business can’t sustain itself through value creating moves then the stock has little reason to justify why it has beaten the market in recent months. The ideas of gambling and partnerships with second-best media outlets do not encourage me to buy over a sustainable Internet business like Google Inc (NASDAQ:GOOG), which is also dabbling in pie in the sky ideas.

Conclusion

Groupon has recovered quite a bit (doubling, to be precise) since falling to its low. With no debt and a free cash flow yield of 8.3%, the firm still looks cheaper than many of its social media peers. Zynga is overly reliant on social networking sites, which are faddish. Moreover, the company is just moving into the profitable territory with a very vulnerable business model. In my view, Facebook is a considerably more attractive stock to play than Zynga is. It is incredibly cash rich at a current ratio of 10.7x and is still on track for high double-digit growth. Moreover, it has considerable opportunities to monetize a 1 billion user base–once it finds what works, the current multiples will be less of a hindrance to value creation. This preference is ultimately shared on the Street: Cantor Fitzgerald and Deutsche Bank both recently reiterated a “buy” rating.

The article Should You Buy These Social Media Stocks? originally appeared on Fool.com and is written by David Gould.

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