Facebook’s IPO Could Cripple the Social Media Market

The idea of betting big on a hot new IPO in the hopes of making a buck is quickly losing credibility. And it soon might get much, much worse. Facebook � and it�s massive, impending stock offering � could be the nail in the coffin for social media stocks if all does not go according to plan.

As a group, social media stocks have thus far been a rather unimpressive group…

Linkedin Corp. (NYSE:LNKD) continues to find lower ground after its 2011 IPO (it�s currently down more than 21% from its first-day price). Daily deal provider Groupon Inc. (NASDAQ:GRPN) is performing even worse � it�s down more than 25% from its IPO high. Even the Social game maker Zynga Inc. (NASDAQ:ZNGA) is still shy of crawling back up to its IPO day high of $11.50.

However, all will be forgiven once Facebook is finally on the market � at least, that�s what some in the financial media would have you believe�

Late last week, we learned that Facebook is finally preparing to file its initial public offering which could raise as much as $10 billion. The offering will place the value of the social networking site somewhere between $75 billion and $100 billion. The $10 billion IPO alone easily places Facebook among the largest offerings of all time � and the biggest U.S. internet IPO by leaps and bounds.

For some perspective, Google�s 2004 IPO netted the search engine (and now-Facebook rival) what now seems like a paltry $1.2 billion.

But what if investors aren�t so eager to own a stake in The Social Network? What if �after a couple of high-flying weeks � the stock begins to fall? Or even worse � what if it tumbles right out of the starting block?

While I can�t try to predict the trend of a stock that does not yet exist, I can tell you this: If shares of Facebook fail to deliver reasonable gains, this new stock will cut down every other stock in the so-called social media sector. After all, if the biggest and best example of the group fails t! he inves tor�s litmus test, how can the others expect to outperform the market?

Needless to say, I don�t recommend buying these stocks. Even without the specter of Facebook looming over the industry, there�s too many unknown factors at work. First, these IPOs have no trading history- and therefore no chart to refer back to. This makes it difficult to gauge sentiment, or what the important emotional price points of the stock will be.

Second, there are major shareholders and big money investors who will probably be selling their shares for a quick buck, especially if the stock debuts higher than its pre-IPO price, which most higher-profile IPOs often do. This has a tendency to drive the share price down even after an initial spike as these early investors sell their shares.

Obviously, the financial media � and even the mainstream media � tend to fall all over the bigger name IPOs, especially these household name companies that are working to go public. Don�t buy into the hype right away�you could get burned.

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