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

In the information age, online companies have continued to penetrate every aspect of our lives. There has been a lot of focus placed on recent initial public offerings of high-profile online companies. As their growth slows down, are any still worth a buy? Do HomeAway, Inc. (NASDAQ:AWAY), LinkedIn Corp (NYSE:LNKD), and Facebook Inc (NASDAQ:FB) look attractive to investors?

HomeAway

HomeAway, Inc. (NASDAQ:AWAY) operates websites for specialty vacation rental properties. It allows owners of condos, apartments, villas, and cabins to offer their properties for rent online. It operates both domestically and internationally, with 711,000 listings in over 170 countries.

Analysts have recently upgraded the company from sell to hold. So, let’s take a look at the company’s performance in the past and if it is truly a hold or perhaps even a buy.

The company earned $0.18 per share in 2012, an increase from $0.08 the year before. In 2011, though, the company paid out to preferred stock holders, so the actual earnings to common stock holders were zero. The company has outstanding gross margin of 80%. This is mainly due to the online nature of its services. Net profit margin is only 5.3%. This is likely to increase next year due to the continual reduction of general and administrative expenses.

In 2011, total selling, general, and administrative expenses were 64% of revenue. In 2012, the average SG&A expense was 62%, but it decreased from 69% in the first quarter to 58% in the final quarter. As this expense is reduced by increasing the efficiency of operations and scaling up for growth, the company will be able to increase its net profit margin.

In 2013, the company is expected to grow its customer base. It recently partnered with TravelMob — a vacation service similar to HomeAway, Inc. (NASDAQ:AWAY) but focusing on Asia Pacific. This opens up an area of growth for HomeAway, as Asia Pacific is one of the largest and fastest growing tourist destinations.

Earnings are expected to increase next year as more revenue and higher margins take effect. Investors have already priced these positives in to the stock, so HomeAway, Inc. (NASDAQ:AWAY) is a strong hold at $31 per share.

LinkedIn

LinkedIn Corp (NYSE:LNKD) is the most profitable social media company that is publicly traded. It is also one of the most visited sites in the world. In the United States, it is the eleventh most visited website.

The company has been expanding internationally, and has seen its revenue grow at a very fast rate. The fourth quarter of last year saw a year-over-year increase in revenue of 81%. It increased its premium memberships 79% year-over-year. Premium memberships allow users additional features and priority communications to other members.

Like HomeAway, Inc. (NASDAQ:AWAY), the company has a very strong gross margin of 87%. But, net profit margin is extremely low – 2.2%. The company has been focused on cost cutting measures, so that as revenue grows, earnings will grow even more.

Earnings per share grew 64.2% in the last year and are expected to keep growing next year. The main factors affecting the growth are the continued international expansion, additional free and paid-for features, and cost cutting goals of the company’s management. LinkedIn Corp (NYSE:LNKD) just announced it would now offer a mention feature so users can mention other users much like Facebook and Twitter. Adding new functionality will keep customers and users engaged.

The stock has grown almost 75% in the last year. Investors have noticed the opportunity and value of LinkedIn Corp (NYSE:LNKD). At $171 per share, the company is attractive to hold and watch for modest gains. But, it is a little too expensive to buy right now.

Facebook

Facebook Inc (NASDAQ:FB) had one of the most anticipated initial public offerings that I could remember. Ever since the IPO, the company hasn’t been able to perform to the level investors expect.

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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