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HomeAway, Inc. (AWAY), LinkedIn Corp (LNKD), Facebook Inc (FB): Are Any Online Companies Worth a Buy?

Facebook Inc (NASDAQ:FB) has recently added new revenue streams to its business model. It has expanded mobile marketing and advertising within home-page newsfeeds. Also, the company offered users the option to promote status information. Now, Facebook is offering users the ability to send a direct message to a user who is not connected to them for a fee. LinkedIn Corp (NYSE:LNKD) has been using this model as part of its premium membership program.

On April 12, Facebook launched a new mobile phone software called Facebook Home. This software will put a user’s Facebook account on the home page of an Android-based device. It will give people instant access to Facebook Inc (NASDAQ:FB) information. It hopes to capitalize on monetizing mobile access to Facebook Inc (NASDAQ:FB) via mobile advertising.

Revenue is expected to increase 30% to $6.7 billion in 2013, largely due to increased efforts of monetization. Facebook’s net profit margin is only 1% and it has gross margin of 73.4%, so it must focus on two things: aggressive growth and aggressive cost cutting. Its cost of revenue and total operating costs have been increasing as it is launching new features for users. In 2009, its net profit margin was 33%, so the decline in the net profit margin has been steep.

Investors should still be worried about this company. It has been growing its top line through expansion but not focusing on its bottom line enough. At $27 per share, the company is a hold at best, and possibly a sell if it doesn’t find a way to increase its net profit.

Final thoughts

Social media and online companies are here to stay. Their services are directly ingrained in our lives. Not all companies are equal – in service or value. Of these three companies, stay away from Facebook Inc (NASDAQ:FB). It has had disappointing performance since its IPO. One of the major difficulties it has is monetizing its customer base. A company that has a hard time making money isn’t one investors should like.

LinkedIn Corp (NYSE:LNKD) and HomeAway, Inc. (NASDAQ:AWAY) are two companies to hold on to right now. They both expect healthy growth this year, but because of their relatively high valuations, it isn’t the best time to jump in right now. Wait for a pull back or other positive news about future earnings.

Austin Higgins has no position in any stocks mentionedHe is the Principal Consultant for Avant Venture Group and focuses on building businesses through innovation, growth and investment. Read his company’s blog at BuildInvestGrow.com and follow him on Twitter @Austin_Higgins.

The Motley Fool recommends Facebook, HomeAway, and LinkedIn. The Motley Fool owns shares of Facebook, HomeAway, and LinkedIn.

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