Social media, until recently a hot sector, faces growing skeptics
Social media, until recently the hottest sector in Silicon Valley, is now getting the cold shoulder from investors, downgrades from analysts and criticism from some fans.
But while the hype around social networking companies has deflated, the industry is no where near a bust, experts say. Unlike the dot-com bubble more than a decade ago, when companies with no profits and scant revenues saw soaring valuations, many social media companies are pulling in millions in revenues as they change the way people work, play and communicate.
"The reality is, they are going through amazing growing pains," said Tim Bajarin, president of Creative Strategies.
Many social media companies burst onto the Internet as culture-changing enterprises Now, though, some are being hammered by Wall Street.
Investors are dismayed with Facebook and Zynga. Twitter, meanwhile, triggered a public relations disaster when it shut down a British journalist's account after he criticized Twitter's Olympic partner, NBC -- and then reversed itself. And some advertisers are skeptical that social networks are the right platform for their ads.
Still, most analysts say the future is far from gloomy.
"They are still innovating at Facebook," said Kevin Lee, co-founder of Didit, an online
Nonetheless, investors are on edge. Facebook's market value has collapsed to about half of the record $104 billion valuation the company set when it began selling shares in May. "The jury is in: Facebook is not and will not be a second Google (GOOG)," IDC analyst Karsten Weide wrote after the company reported its first quarterly earnings last week that revealed its revenue slowing.
Social network companies Zynga, Pandora and Groupon also are trading far below their initial public offering price.
Both San Francisco-based online game company Zynga and Facebook have also been hit with lawsuits from investors. In Zynga's case, executives and early investors are accused of knowing the company was struggling when they sold millions of shares before announcing a substantial drop in projected earnings. Facebook and its banking partners have been targeted by lawsuits accusing them of misleading investors by failing to share information passed on to select Wall Street analysts that warned of less-than-rosy financial results for its first quarter as a public company.
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Social media, until recently a hot sector, faces growing skeptics