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The web and the new frontier for hedge funds

In the past years they have been accused (not formally) of putting entire countries to their knees with their speculations. Now hedge funds are pointed out as protagonists of the new technology bubble.

According to the Wall Street Journal in fact, hedge funds have also started to bet on start-up of ‘social media’, those that use online social networks – like Facebook – to promote products and services of all kinds.

The strange trend

Hedge funds typically invest in securities fact ultra liquid that can sell quickly, while the investments in companies in its infancy and not yet listed, are a speciality of venture capital funds, which if held in the portfolio for years by following the growth.

But hedge fund are speculators par excellence and some of them decided to risk buying on the unofficial market titles belonging to the dot.com industry, hoping for a quick profit on the stock exchange upon arrival. By doing so, their money is increasingly contributing to the growth of the valuation of these social-giants.

Ratings

Facebook, for example, could be worth $ 100 billion when the stock market will come, perhaps in spring 2012: more than high-tech giants like Hewlett-Packard (whose current market capitalization is 74 billion) and Amazon.com97 billion). Only last January, its value was estimated at 80 billion dollars.

This year we have seen the IPO for LinkedIn, the most successful professional network, achieving incredible valuations: its shares are up 139% compared to the offer price. The hedge fund Tiger Global Management had bought 4.2%  by paying 70 million dollars, a block of shares currently worth nearly 400 million dollars.

And than we have another great example of social phenomenon with a more realistic turnover and profits doing is début among those who have already started the procedures for the IPO.

Zynga, best known by the tens of millions of fans thanks to CityVille – the most popular game on Facebook. Yet this game firm has generated $ 235 million last quarter, +153% on the first, with 11.8 million net profit almost doubled.

Groupon has a higher turnover – 713 million dollars in annual sales  – but it is deep red (413 million dollars lost in 2010): Groupon operating costs are very high because they have to convince retailers to offer substantial discounts to its users. Also weighing on the future of the growing number of competitors, which can easily replicate its business model.

Facebook slows…in the U.S.

The major factor that measure the profitability of a social start-up is its audience, the amount of incoming new users that every day login to the myriads of different platform to share and keep in touch with friends.

In that respect it becomes important to notice how these newly born giants make an effort to keep the amount of user growing so that they can justify their IPO’s evaluation.

That’s why it’s interesting to point-out the contrast between news reporting a slowdown in growth for Facebook, which according to research firm Inside Network have already a decline of 6 millions of users on the U.S. in May. In addition to that it must meet the challenge that Google has launched with Google + within the the social network market.

If, from one side, the biggest social network platform is trying to maintain is user-basin, from the other end we have seen their latest move of acquiring Skype, planning to incorporate its chat and video-calll services within the existing platform.

Is this just the beginning of a path that will lead us in 2012 to witness the highest IPO we have ever seen?

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