Can Facebook and LinkedIn Keep It Up?

It was a good week to be investing in social networking. 

Shares of Facebook (NASDAQ: FB  ) and LinkedIn (NYSE: LNKD  ) posted double-digit percentage gains last week. Sure, we're talking about just 10% pops for the stocks. The hearty rallies pushed Facebook to a new all-time high on Friday, as LinkedIn closed in on last month's high-water mark.

It wasn't necessarily company-specific news pushing the two dot-com darlings higher. LinkedIn did roll out some new apps. Facebook snapped up a mobile-analytics specialist. A perfect storm of Twitter drawing closer to its IPO, Google (NASDAQ: GOOGL  ) stock blasting through $1,000 after delivering blowout quarterly results, and a strong bounce for tech stocks helped woo the market's attention. 

Twitter's IPO drew closer as it chose its exchange and updated its financials. The new metrics show continuing red ink for Twitter on healthy top-line growth. That's good news for Facebook and LinkedIn as the profitable Web 2.0 leaders. Google's strong numbers are also great news for Facebook and LinkedIn. 

Cost-per-click rates may be falling at Google as a greater proportion of its traffic is resulting in lower-paying ads on mobile. But the dramatic upticks in Google's paid clicks show that consumers and advertisers continue to gravitate to Web-based marketing. Google may be a direct competitor to Facebook with its Google+ offering, but the strong online advertising news is a good example of a rising tide lifting all ships.

Investors aren't looking for bargains here. Facebook trades at a steep 55 times next year's earnings. LinkedIn is even more expensive on a forward earnings basis, fetching a multiple of 113. 

Bulls will argue that the stiff multiples are meaningless. No one's buying LinkedIn for current earnings. The real value here is as LinkedIn continues to evolve as the corporate-minded social networking destination of choice for recruiters and potential hires. Facebook can afford to dream even bigger. It already has more than a billion chatty Internet users on board. They may complain about Facebook's constant redesigns and the intrusive nature of ads, but the undisputed market champ is just starting to scratch the surface.

Facebook and LinkedIn have the ability to get better at monetization, and once they do today's profits will be minor in comparison. Investors may be hesitant to chase Facebook and LinkedIn after last week's strong rallies, but their potential makes the seemingly lofty valuations worth it.

A speedy social networking speedster is one of three stocks in this report
As every savvy investor knows, Warren Buffett didn't make billions by betting on half-baked stocks. He isolated his best few ideas, bet big, and rode them to riches, hardly ever selling. You deserve the same. That's why our CEO, legendary investor Tom Gardner, has permitted us to reveal The Motley Fool's 3 Stocks to Own Forever. These picks are free today! Just click here now to uncover the three companies we love. 

 


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2692204, ~/Articles/ArticleHandler.aspx, 9/18/2014 8:08:42 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement