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.
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.
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.
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.