10 Stocks to 'Like' When Facebook Goes Public (Update 1)

TheStreet.com

Updated from May 8th to provide additional information on Steve Wozniak buying Facebook and Jive Software earnings.

NEW YORK (TheStreet) -- Now that Facebook FB has set the share price for its initial public offering, had its roadshow, investors are looking for ways to play the year's biggest stock sale, set to come this Friday.

Some have questioned whether buying Facebook shares on their first day of trading is worth the risk, considering that revenue is declining and costs are rising.

View gallery

.

In an updated S-1 filing, Facebook said its first-quarter revenue rose 45% year-over-year to $1.06 billion, but that was down 6% from the fourth quarter. Costs also rose 66% year-over-year as the social networking giant expanded data centers and its staff.

There are several ancillary companies -- including suppliers, competitors or partners -- that offer ways for investors who aren't members of Wall Street's elite a chance to profit from the IPO.

Here are 10 stocks that may benefit from Facebook's IPO.

View gallery

.

1. Fusion-IO

Fusion-IO FIO is best known for its solid-state-drives (SSD), and counts Facebook and Apple AAPL as its two largest customers. SSDs allows Facebook to have access to data at faster speeds with lower power and cooling costs.

The company recently reported third-quarter earnings that beat analysts' estimates, but shares slipped on gross margin concerns. Revenue rose 40% year-over-year to $94.2 million, earning 6 cents per share, excluding items.

Former Apple co-founder Steve Wozniak is the chief data scientist at Salt Lake City, Utah-based Fusion-IO. Wozniak recently said he planned to invest Facebook. "I don't care what the opening price is," he told Bloomberg. Shares of Fusion-IO have lost 12.56% this year.

Content on this page requires a newer version of Adobe Flash Player.

View gallery

.

2. Zynga

Social gaming company Zynga ZNGA is the closest way to invest in Facebook without owning the shares.

Facebook generates a significant portion of its revenue from Zynga (approximately 11% of 2011 revenue and 12% of first-quarter 2012 revenue), and is so important to Facebook that it was listed as a major risk factor in its S-1 filing. "If the use of Zynga games on our platform declines for these or other reasons, our financial results may be adversely affected," the S-1 said.

San Francisco-based Zynga has been diversifying itself away from Facebook, launching its Zynga.com platform and there are rumors that the company is expanding into online gambling. Zynga recently bought Draw Something maker OMGPOP for $200 million to diversify beyond Facebook.

Shares of Zynga have lost 9.03% this year.

Content on this page requires a newer version of Adobe Flash Player.

View gallery

.

3. Digital Realty Trust

Facebook said in its recently amended S-1 that its costs soared 66% year-over-year as it expanded data centers and staff.

Digital Realty Trust DLR counts Facebook as a major tenant, and as Facebook's needs for server farms continues to grow, Digital Realty is poised to benefit.

The San Francisco-based real estate investment trust (REIT) recently reported healthy first-quarter earnings. Barclays analyst Ross Smotrich, who rates shares "overweight" with an $80 price target, says demand for its data centers remains strong and is growing. The company is also adding commercial space designed for multiple tenants and redeveloping vacant space at its Internet gateway data centers, Smotrich wrote in a recent research note.

Shares of Digital Realty have gained 9.31% this year.

Content on this page requires a newer version of Adobe Flash Player.

View gallery

.

4. Equinix

Equinix EQIX , like Digital Realty, is a data center company that counts Facebook among its customers. In addition to Facebook, it has customers in financial services and data networking.

The Redwood City, Calif.-based company recently posted strong first-quarter earnings and revenue that jumped 25% year-over-year as its cloud computing, mobility and data management businesses grew at healthy paces.

Equinix reported earnings of 71 cents per share on $452.2 million in revenue. Wall Street analysts polled by Thomson Reuters were looking for 49 cents per share on $445.1 million in revenue. Equinix also raised its second-quarter and full-year revenue forecasts.

Shares of Equinix have gained 60.81% this year.

Content on this page requires a newer version of Adobe Flash Player.

View gallery

.

5. GSV Capital

Investors looking for a way to buy Facebook before it goes public can look no further than Woodside, Calif.-based GSV Capital GSVC .

GSV Capital buys stakes in private companies that are in the development stage, like a venture capital fund. It acquires positions from the companies themselves and through secondary markets.

GSV owns 225,000 shares of Facebook as well as stakes in Twitter, Groupon GRPN and Bloom Energy.

Shares of GSV Capital have gained 31.47% this year.

Content on this page requires a newer version of Adobe Flash Player.

View gallery

.

6. Microsoft

Microsoft's MSFT attempts at social networking have never been anything noteworthy, but investors have to laud CEO Steve Ballmer's decision to buy part of Facebook.

In 2007, Redmond, Wash.-based Microsoft purchased 1.6% of the social networking giant for $240 million, which gave Facebook a whopping $15 billion valuation. Facebook's value has increased fivefold since then.

Microsoft is selling 6.56 million shares of the 32.8 million Facebook shares it owns. At the mid-point of the IPO price ($31.50), Microsoft stands to make $206.5 million, nearly recouping its initial investment with more than 26 million shares left.

Shares of Microsoft have gained 16.37% this year.

Content on this page requires a newer version of Adobe Flash Player.

View gallery

.

7. Goldman Sachs

Goldman Sachs' GS leaders may consider investment banking "God's work," but the New York City-based bank is a pretty good money manager too.

Goldman Sachs is selling 13.2 million shares of its 65.9 million-share stake in the company. At the mid-point of the IPO price ($31.50), Goldman Sachs stands to make $415.5 million nearly recouping its initial investment with more than 42 million shares left.

Shares of Goldman Sachs have gained 10.44% this year.

Content on this page requires a newer version of Adobe Flash Player.

View gallery

.

8. LinkedIn

LinkedIn LNKD was the first social networking site to go public, holding its IPO in May 2011 at $45 per share, reaching $122.70 at the high that day.

LinkedIn proved the demand for profitable social networks. As "Facebook fever" continues, it doesn't hurt that LinkedIn just reported strong first-quarter results. Mountain View, Calif.-based LinkedIn reported earnings of 15 cents per share on $188.50 million in revenue for the quarter that ended in March. Analysts polled by Thomson Reuters were expecting earnings of 9 cents on $178.58 million in revenue.

LinkedIn doesn't compete directly with Facebook, but BranchOut, a Facebook app that launched in July 2010, has been gaining traction, with more than 25 million registered users, according to its website.

Shares of LinkedIn have gained 75.46% this year.

Content on this page requires a newer version of Adobe Flash Player.

View gallery

.

9. Renren

Facebook has more than 900 million users already, but one market it can't access is China. That's where Renren RENN , the "Facebook of China." comes in.

American companies have had difficulties complying with Chinese regulations says Sterne Agee's Arvind Bhatia, who initiated coverage on Facebook. Companies such as Amazon AMZN and eBay EBAY have entered China through acquisitions with mixed results.

Shares of Beijing-based Renren have gained 64.51% this year.

Content on this page requires a newer version of Adobe Flash Player.

View gallery

.

10. Jive Software

Called the "Facebook for enterprise" by some, Jive Software went public in late 2011, and has been a stalwart since then. Shares have gained 18.75% this year.

Shares recently fell after a critical report questioned the company's valuation and fundamentals.

Jive Software reported earnings last week that beat Wall Street expectations. The 11-year-old company lost 9 cents a share, but revenue grew 58% year-over-year to $25.3 million. Analysts polled by Thomson Reuters were expecting a loss of 13 cents and $24.4 million in revenue.

Content on this page requires a newer version of Adobe Flash Player.

>>To see these stocks in action, visit the 10 Stocks to 'Like' When Facebook Goes Public portfolio on Stockpickr.

--Written by Chris Ciaccia in New York

>Contact by Email.

View Comments (0)