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10 Stocks to ‘Like’ When Facebook Goes Public

Chris Ciaccia |Technology Reporter
Tuesday, 8 May 2012 | 12:54 PM ET
Facebook IPO hat
Photo by Jodi Gralnick for CNBC.com
Facebook IPO hat

Now that Facebook has set the share price for its initial public offering and kicked off its roadshow, investors are looking for ways to play the year’s biggest stock sale.

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.

In an updated S-1 filing, Facebook said its first-quarter revenue rose 45 percent year-over-year to $1.06 billion, but that was down 6 percent from the fourth quarter. Costs also rose 66 percent 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.

1. Fusion-IO

Fusion-IO is best known for its solid-state-drives (SSD), and counts Facebook and Apple 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 percent 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. Shares of Fusion-IO have lost 9.4 percent this year.

2. Zynga

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

Facebook generates a significant portion of its revenue from Zynga (approximately 11 percent of 2011 revenue and 12 percent 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 OMGPOPfor $200 million to diversify beyond Facebook.

Shares of Zynga have lost 11.37 percent this year.

3. Digital Realty Trust

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

Digital Realty Trust 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 10.74 percent this year.

4. Equinix

Equinix, 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 percent 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 55.17 percent this year.

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.

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 , Groupon, and Bloom Energy.

Shares of GSV Capital have gained 30.68 percent this year.

6. Microsoft

Microsoft’s 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 percent 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 18.07 percent this year.

7. Goldman Sachs

Goldman Sachs’ 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 21.69 percent this year.

8. LinkedIn

LinkedIn 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 76.92 percent this year.

9. Renren

Facebook has more than 900 million users already, but one market it can’t access is China. That’s where Renren, 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.com and eBay have entered China through acquisitions with mixed results.

Shares of Beijing-based Renren have gained 80.28 percent this year.

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 41.69 percent this year.

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

Analysts polled by Thomson Reuters expect Jive to report a loss of 13 cents per share on revenue of $23.38 million in its first quarter. Jive will discuss the results after the close of trading on May 8.

Additional News: Zuckerberg Kicks Off Facebook’s Roadshow in New York

Additional Views: Zynga Earnings May Reflect Facebook Gaming Slowdown: Analyst

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Disclosures:

TheStreet’s editorial policy prohibits staff editors, reporters, and analysts from holding positions in any individual stocks.

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