5 Tech Stocks You Should Have Bought Instead of Facebook

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Robert Galbraith / REUTERS

Facebook CEO Mark Zuckerberg looks on during a media event at Facebook's headquarters in Menlo Park, Calif., on March 7, 2013

Facebook’s intensely hyped initial public offering one year ago today was supposed to be a triumphant moment for Silicon Valley and Wall Street. After years of buildup and a valuation that had ballooned to $100 billion, ordinary investors would finally get the chance to own a slice of the hottest tech company on the planet. In the weeks leading up to the IPO, many tech experts — including some of the most prominent venture capitalists in the country — repeatedly insisted that once public, Facebook’s stock price would soar beyond the $38 per share offering price.

Is it any wonder that thousands of ordinary investors clamored for a piece of the action? Easy money, right? One New York man even considered taking $25,000 from his daughter’s college fund to invest in Facebook’s IPO. “She doesn’t need this money for another eight years,” Jim Supple told the Wall Street Journal. “If it goes the Google route, I’ll be in good shape.” Google’s share price has increased by 735% since the Web search giant went public in 2004.

(MORE: Shopping for Cool: Yahoo in Talks to Buy Tumblr)

Luckily for Supple’s daughter Jade, he reconsidered his plan to gamble her college fund on Facebook shares. The wall-to-wall media hype, it seems, made him nervous. “I’m going to sit on the sidelines on IPO day,” Supple decided. “We’re going to have to wait until the smoke clears.”

Facebook’s IPO was a disaster for regular investors. After going public at $38 per share, Facebook’s stock price quickly rose to $45 before plunging to $20. One year later, Facebook shares remain 30% below the offering price, and the company is still dealing with the fallout, including lawsuits from irate investors who feel they were duped.

Hindsight is 20/20, of course, but one year after Facebook’s IPO, here are five technology stocks that investors would have been better off buying. Sure, these companies have been around for longer than Facebook, and didn’t have the white-hot buzz that Facebook had at the time of its IPO. What they did have, however, were business models and financial-growth prospects that justified their valuations.

(MORE: Facebook’s IPO One Year Later: Mobile Growth, Legal Headaches and a Stalled Stock Price)

Google Last year at this time, Google’s stock was trading at about $600 per share. As of the close of trading on Friday, Google shares were trading at around $900 per share, a 45% increase. What’s driving that performance? The company’s relentless revenue and profit growth. In the first quarter of 2013, Google reported profit of $3.3 billion, a 16% increase from the previous year on revenue of $14 billion, a 31% increase.

AOL How about AOL? Practically left for dead as recently as a few years ago, Internet pioneer AOL has enjoyed a remarkable renaissance recently. One year ago, the company was trading at about $26 per share. On Friday, AOL’s stock closed above $37 per share, a 42% increase. Net income grew 23% in the first quarter of 2013, driven by increasing advertising sales. AOL CEO Tim Armstrong still faces an uphill battle in his turnaround campaign, but he’s made remarkable progress, given where the company was just a few years ago, and that’s driving the company’s share price.

eBay Talk about a stodgy Internet name. In recent years, Internet-auction pioneer eBay has been eclipsed by “buzzier” tech companies like Facebook and Twitter. But thanks to the company’s savvy purchase of online-payments business PayPal, the company continues to report solid results. Last year at this time, eBay shares were trading at around $38 per share. Today, those shares are hovering at around $56, a 43% increase. In the first quarter, eBay earned $677 million on revenue of $3.7 billion, and PayPal revenue jumped 18%. The auction site may not be the sexiest name in tech, but it is consistent.

(MORE: Why Mobile Growth Is the Key to Facebook’s Future)

LinkedIn When people talk about social-networking companies, LinkedIn, the service for business professionals, tends to be characterized as something akin to the dorky kid in the class, operating in the shadow of Facebook, the varsity quarterback. But guess what? It turns out the quarterback couldn’t pass his economics final. Over the past year, LinkedIn shares have enjoyed a whopping 73% increase, driven by its diversified revenue streams, which includes “talent solutions,” a job posting and recruiting product. Last quarter, LinkedIn’s revenue jumped 72% from the previous year.

Yahoo One year ago, if someone had predicted that Facebook shares would decline by 30% while Yahoo’s stock price would enjoy a 79% increase, you might have thought they were crazy. But that’s precisely what’s happened, driven in large part by enthusiasm about Yahoo’s still relatively new CEO Marissa Mayer. Last quarter, Yahoo’s profit surged 36%, even as revenue dipped slightly. Like Armstrong at AOL, Mayer still has a long way to go to turn around Yahoo, but so far, Wall Street has been more than pleasantly surprised.

What’s the moral of this story? When it comes to investing in technology stocks, it’s best to avoid the latest hype-fueled flavor of the month. As they say on Wall Street, past performance is no guarantee of future results. Facebook’s dismal showing over the past year is a cautionary tale about getting caught up in the hype, and losing sight of the fundamentals.

17 comments
dRossi
dRossi

You got your yearly percentages wrong. As of May 20th:

Yahooo 72,7%

Google 49.6%

AOL 49.8%

Linkedin 55.4%

Ebay 43.7%


How ABOUT Netflix...... 226.2%!!!!!!!!!!!!!!!!!!!!!


KobeWild
KobeWild

I made money with facebook.  I bought and sold it in about 15 min's on it's IPO..

total profit after taxes....   $65.75.....    I have to say thank you to the nasdaq for blowing up on that day or I would have lost $20K



DoobieBrothers
DoobieBrothers

I made money with Facebook. Why? Because I bet 2 friends $100 each that within the first 12 months after the IPO that there would be a least one closing day where the stock would be more than 50% under the IPO price. Money in the bank!

NZAircraftFan
NZAircraftFan like.author.displayName 1 Like

I always said that facebook IPO would be a flop . People don't have to pay to use this service so how would facebook make a decent return on everyones investment ? Advertisting will never make that much money for facebook   I also think that facebooks popularity is on a decline its not cool anymore with teenagers . I am no fan of it pefer twitter any day

ChadMicheal
ChadMicheal

I think Facebook is still powerful though it might be on the rocks. It would be difficult to bring it down. Though Google is a very very strong one and safe if you want Stocks.Vivek Sood mentioned in his book The 5-Star Business Networks that innovation is important for business and I think the prob of FB is that it stopped in innovation even if they are trying to please people/business partners with their mobile, it is still not enough if they want to beat google.

RaisingHR
RaisingHR

FB = 1+ billion users = value now and long-term.  

reymalahay
reymalahay

In my books FB is still a reputable organization, despite last year's IPO flop. One organization investors should stay well away from is this one http://bit.ly/YBRHHi

ChikuMisra
ChikuMisra

Shoulda,woulda, coulda. Why did Hillary ignore the cable? Why did condi ignore the cable? Why didn't jfk use the bulletproof top? Why did lincoln go to the theatre? Why was nixon such a lying weasel? There is no point asking. Hindsight is always 20/20. I became a customer of aol in the summer of 1993 when they had less than two million subscribers. A thousand dollar investment in their stock would have yielded about fifty thousand dollars six yrs later. There is no point playing these parlor games.

GaryThomson16
GaryThomson16

The consensus Wall Street year-end price target for the S&P 500:
* Citigroup: 1615
** I Know First algorithm: 1575
*** HSBC: 1560
Good Luck!

epcdm
epcdm

"Yahoo! ... driven in large part by enthusiasm about Yahoo!’s still relatively new CEO Marissa Mayer. ...

What’s the moral of this story? When it comes to investing in technology stocks, it’s best to avoid the latest hype-fueled flavor of the month...."


Come again?

ChikuMisra
ChikuMisra

It's just that she really fine to be a ceo

twins.fan
twins.fan

Only five? I am thinking that there are a lot of companies that have performed better than a yearly loss of 30% and a corporate executive who was dumping millions of shares of the stock.