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During the second quarter of the year, venture capitalists have thrown about $2.23 billion into IPOs, mostly red-hot social media companies. This number is up more than 240% from last year. With investors highly anticipating the public offerings of companies like Facebook and Groupon, there's certainly no shortage of excitement in the industry right now.
However, currently, the most pertinent question is this: With so many new companies listing on exchanges, is there actually a safe place to park your hard-earned cash?
We asked three of The Motley Fool's experts that exact question, and below they gave us three awesome stocks that they think might be worth your investing dollars.
Fool contributor Anders Bylund
Some of 2011's hottest IPO stocks will be around for decades, while others are likely to fizzle and die in short order. The trick for investors is to figure out which stocks go in what category -- and then capitalize on the ones getting shuffled into the wrong class.
That's why I like Pandora (NYSE: P ) for the long haul. The digital music master is assailed by bigger and richer competitors on all sides, including established online kings Google (Nasdaq: GOOG ) and Apple (Nasdaq: AAPL ) . The company even competes with terrestrial radio stations and satellite radio guru Sirius XM Radio (Nasdaq: SIRI ) , and the argument goes that any or all of these could wipe Pandora off the face of Wall Street anytime.
On top of all that, Pandora pays higher royalties than most of its rivals because of the Internet-based nature of its business. That sure doesn't help. It's easy to see why many investors would be bearish on a stock like Pandora, and prone to panic-selling at the first hint of trouble.
But I see strong parallels between Pandora and Netflix, from the initial skepticism to the fear of high content licensing costs. That's not a bad role model. Pandora will inevitably run into its fair share of roadblocks, but I'm convinced that the company will carve out a distinct and eventually profitable niche for itself.
I wouldn't buy Pandora at today's rich valuation, though. One of two things needs to happen before I jump into Pandora's box:
- Mr. Market overreacts to some piddling bit of bad news, lowering the price-to-sales ratio from 18 to something like 6 or 7; or,
- Pandora diversifies its revenue streams, juicing sales and overcoming the royalty hurdle.
At that point, I'm in. For now, Pandora simply sits in my watchlist awaiting the right time to act.
Fool contributor Rick Aristotle Munarriz
Jiayuan.com (Nasdaq: DATE ) is China's leading online dating site with 44% of the market. It coincidentally went public on the same day as stateside matchmaker FriendFinder Network (Nasdaq: FFN ) -- but Jiayuan's the one worth owning. Online dating in China is a market that Oppenheimer & Co. expects to triple by 2015, and cyberspace tracker iResearch sees website revenue in this niche roughly quadrupling.
Jiayuan should grow even faster given its market leadership and its smart decision to avoid the upfront fees charged by its smaller rivals.
Registered users can browse through millions of profile pages for free on Jiayuan. They are only charged a small fee when they actually want to contact someone on the site. The pay per lead model is working.
There was an average of 4.7 million monthly active users during this year's first quarter, an 89% increase over the past year. However, the number of paying user accounts soared 188% to 882,471. The viral plan is turning lookers into bookers, and the company that is nearly breaking even on explosive top-line growth today should be ridiculously profitable in the near future. Despite the heady growth and tremendous upside, Jiayuan isn't trading for a whole lot more than May's $11 IPO price.
China is clearly a risky place to invest in these days, but it would be a mistake to get in the way of matters of the heart.
Fool contributor Tim Beyers
For Boingo Wireless (Nasdaq: WIFI ) , the ticker says it all. The 10-year-old Los Angeles based company is a Wi-Fi specialist whose founder, Sky Dayton, started EarthLink in the early '90s.
Both businesses share a common goal: connect users to the Internet cheaply, wherever they may be. But where EarthLink specialized in dial-up (and then later DSL) access, Boingo has created a worldwide network of more than 325,000 hot spots that includes networks in top U.S. airports such as Chicago's O'Hare and New York's JFK International.
In many ways, the Boingo model is borrowed from the mobile phone business. Before the rise of nationwide networks, users were forced to "roam" if they left their carriers' home area. Boingo takes this same idea and applies it to Wi-Fi, charging either per-use or per-month to access any affiliated network. Users like the idea: Revenue grew 22% last year as adjusted profit tripled.
Not that they have much of a choice. Both AT&T and Verizon are throttling their heaviest data users -- i.e., business travelers -- leaving Wi-Fi as their best option for getting things done on the go. With more users going mobile and consuming more data, this gulf is only going to get wider.
Boingo was worth more than its $13.50 a share IPO price when it went public in May -- and it's worth even more now.