Market Pricing Uncertainty: The Reason To Avoid Social Media Companies

As the investment world became captivated by the flurry of initial public offerings for large social media names in 2011, internet-based companies have once again become a hot topic to chase after. The commotion over access to this new frontier had opened the door to successful offerings found by social giants such as Zynga (ZNGA), Zillow (Z), Angies List (ANGI), LinkedIn (LNKD) and Groupon (GRPN). Founded on the basis of popularity itself, such companies were bound to find a wide audience of investors looking to own a fraction of the growth opportunity.

In an expression of crazed fanaticism that emphasized both an inability to properly price the underwritings and a sense of fervor driving investors to claim ownership to such popular names, share prices of these companies fluctuated greatly on their first day of trading. By their first trading day's end, LinkedIn had closed 109% higher than its pricing, Zillow