7 Stocks Feeding Off the Facebook IPO

05/18/2012 10:11 am EST

Focus: STOCKS

Sean Udall

Investment Strategist, Portfolio Manager, Proprietary Trader, Minyanville

Sean Udall, author of the TechStrat Report and contributor to Minyanville.com, highlights seven stocks that are likely to benefit from a strong Facebook IPO.

So far, aside from the social media names to feed at the public trough, the Facebook (FB) effect has yet to be largely seen in the markets. That is, until this week. You may not be able to get in on the Facebook IPO action today, but here are seven companies that stand to benefit.

Google (GOOG)

I've been table pounding about Google (GOOG) for many reasons (for its Chrome, Docs, Search, Cloud, Android, valuation, etc.), but certainly as a strong play given the Facebook catalyst. The stock recently jumped $15 in early trading and I think much of the action is due to Facebook increasing the number of shares allocated by 20-25%.

chart
Click to Enlarge

This effectively just boosted the Facebook valuation from the $100 billion area to around $125 billion, and I now think the market is thinking what I've been thinking for some time: Facebook is going to zoom past the $150 billion mark and possibly hit something closer to $185 billion the first day.

I've penned a ton of work on Google, and not that it needs another valuation catalyst, but if Facebook trades at $200 billion, then Google should trade at or above $300 billion. Or, said another way, at 6.5x sales versus Facebook at 50x sales.  

Microsoft (MSFT)

I covered my Microsoft (MSFT) short largely because of the coming Facebook IPO.  Mr. Softee is probably the easiest call for a little bit of upside on a big Facebook run. Simply put, Microsoft bought a nice chunk of Facebook years back at a valuation under $10 billion, so Microsoft is set to make a very nice chunk of change on this investment.  

chart
Click to Enlarge

NEXT: Game Companies That Do Big Business with Facebook

|pagebreak|

Zynga (ZNGA)

Nearly everyone knows that Zynga (ZNGA) is a primary benefactor of the Facebook IPO, and so far the most successful company at monetization from the Facebook platform. I can see strong potential catalysts for the FarmVille creators, and also feel it could see a strong delayed reaction move to a big rise in Facebook. However, I have not personally been able to pull the trigger on the long side here.

chart
Click to Enlarge

Electronic Arts (EA)

Personally, I'd rather own this cash-rich and very undervalued gaming franchise instead of Zynga. It's sporting just a $4.5 billion valuation versus $6.5 billion from Zynga and has a quarter of the market capitalization in net cash. I also very much like EA's strong growth in digital revenues and feel it could find ways to monetize gaming on several social platforms, including Facebook's.  

chart
Click to Enlarge

NEXT: Facebook's Two Biggest Customers

|pagebreak|

Fusion IO (FIO)

This stock has been hit by a myriad of negative news items and has been lumped in with what I deem as too many weak-handed, hot-money players. But I can't find too many companies doing as much direct business with Facebook as Fusion IO (FIO).

In recent quarters, Facebook has been Fusion's number one or two customer; Apple (AAPL) is the other. Facebook relies on Fusion's storage memory platforms for data decentralization to manage its ever-growing mountain of data, the lifeblood of revenue production for the company.  

chart
Click to Enlarge

Apple (AAPL)

Does anything justify Apple's valuation in the $500 billions and beyond more than Facebook trading close to or above $200 billion?   

chart
Click to Enlarge

NEXT: A Company Paving the Way for Facebook's Future Growth

|pagebreak|

ComScore (SCOR)

The more Facebook can justify its data value proposition to advertisers, the more it can sell to those advertisers. ComScore (SCOR) provides digital analytics solutions that help companies do just that. The company combines deep insights into consumer behavior with information regarding usage of their online properties and those of their competitors.

Additionally, comScore has intensive analytics on mobile networks, which Facebook has said is the next major growth frontier, as well as a primary future risk for the company.  

chart
Click to Enlarge

In summary, I don't feel a huge need to invest in or trade the Facebook deal. There are plenty of stocks that are currently trading at compelling valuations and will trade much stronger if the Facebook stock goes absolutely to the moon. If that happens, I will simply sit back and let Google and other positions work as tertiary plays.

However, if there's enough fear or negativity and Facebook opens flat or just modestly higher, I will be taking a stake, as I think the company is poised to put in substantial growth for an extended period of time and trade closer to that $200 billion valuation level. 

By Sean Udall, author, TechStrat Report, and contributor, Minyanville.com

Related Articles on STOCKS