Why Wall Street Loves Apple and Google as Facebook and Friends Flail

Investors are bailing out on one-time Web 2.0 darlings Facebook, Zynga and Groupon in favor of proven tech winners Apple and Google.

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Wall Street has soured on social media giant Facebook, online gaming company Zynga, and discount coupon concern Groupon, in favor of two familiar tech stalwarts now reaching new heights. Both Apple and Google are at or near all-time highs. Apple set a record Monday as the most valuable public company ever. (Microsoft still wins adjusted for inflation).

After years of hype, tech investors are finally fed up with Facebook, Zynga and Groupon. They’re fleeing to the safety of Apple and Google, both of which have proven business models, respected executive teams, and stellar track records of revenue and profit growth. The disastrous stock plunges suffered by Facebook, Zynga and Groupon (down 50%, 70%, and 80% since their IPOs, respectively) have led many investors to a simple conclusion: The recent tech IPO boom was an insider’s game, in which Silicon Valley venture capitalists and Wall Street bankers worked together to inflate pre-IPO valuations, allowing insiders to reap billions in cash, leaving public market investors hanging out to dry.

MORE: The Social Media Tech IPO Boom: An Insider’s Game?

As the Web 2.0 trio tanks, Apple and Google look all the better. In 2012, it’s important to many investors, hedge funds, mutual funds and pension funds to have stock market (or equity) exposure to the top technology and Internet companies. As August wraps up ahead of the back-to-school rush, where are you going to put your money? Facebook? Zynga? Groupon? I don’t think so. Sure, you could say that after falling off a cliff, these stocks are “cheap.” But on Wall Street, there’s something called “the falling knife.” You think these stocks have a hit a bottom? Want to test your luck and try catch them at their low-point? Go ahead, but you might get your fingers chopped off.

Apple and Google, by contrast, are two of the most impressive global business stories of the last decade. These companies make incredible products, dominate their respective industries, and mint billions in profits every year. Their leaders are some of the most respected figures in the business world. Do Apple and Google face challenges? Of course. As the technology industry hurtles forward, competition is fierce. But what company savors going head-to-head with Apple in the scaled hardware/design space? What company would be thrilled to try to tackle Google in the web search advertising space? Perhaps most importantly, both of these tech icons are funneling sizable profits back into research and development, laying the groundwork to thrive in the years ahead.

MORE: Facebook Hits Record Low as Insider Stock Sale Lock-Up Period Ends

Facebook? It’s a website with 900 million non-paying users, many of whom appear ambivalent — to put it mildly — about clicking on the service’s ads. Early research shows that marketing on Facebook can be effective, but that’s mostly in the “earned media” realm, where success is much more ephemeral because the key dynamic is altering consumer behavior to drive theoretical purchases sometime in the future. On Google, it’s pretty simple: You do a search for <New York rental cars> and guess what? You’re presented with an array of companies competing furiously to give you the best offer related to the very thing that you went on Google to search for in the first place.

Zynga is an online gaming company heavily dependent on, you guessed it, Facebook, whose products appear to be losing their appeal. The company lost $23 million last quarter, causing the stock to plunge a headache-inducing 40% in one day. In April, with shares still above the IPO price, Zynga held a “secondary stock offering,” in which Marc Pincus, Zynga’s CEO, cashed out to the tune of $200 million. That little maneuver, coupled with the company’s deteriorating stock price and business outlook, so disgusted top Wall Street analyst Rich Greenfield that he felt compelled to issue a note vividly entitled: “Downgrading Zynga to Neutral: We Are Sorry and Embarrassed by Our Mistake.”

Finally, Groupon. It’s difficult to overstate the contempt with which Wall Street holds this Chicago-based coupon dealer. Down a beyond-embarrassing 80% since its IPO, this company is a complete disaster. To examine this firm’s brief and sorry history is to explore a litany of accounting missteps, shareholder lawsuits, insider cash-outs and sophomoric stunts by its CEO Andrew Mason. Following Groupon’s recent 20% stock plunge — in which it blamed Europe for its sales growth weakness (shouldn’t coupons be popular during a recession?) — Morgan Stanley’s Scott Devitt wrote: “Investors may be beginning to question management credibility as Groupon continues to experience growing pains in its third quarter as a public company.” That might be the understatement of the year.

Avoid the terrible Web 2.0 trio. Stick with proven winners like Apple and Google.