Easy Come, Easy Go for Quepasa and Renren
The Facebook coattail-hoppers suffered double-digit percentage slips yesterday.
There wasn't any material news out on either company. Speculators were simply punching out and moving on after a pair of strong trading days. Quepasa's stock had popped nearly 36% higher during the two previous trading days. Renren's surge on Friday and Monday rang up an eye-popping 52% boost.
Things have been -- and will continue to be -- volatile for both stocks since the initial report surfaced last Friday afternoon of Facebook going public. They're in a hot niche. It's the one thing that investors and speculators alike feel can connect them to Facebook ahead of the offering.
It goes without saying that neither company stands to directly benefit from a Facebook IPO. Renren is growing quickly, but struggling to produce material profitability. It toils away in China, where an already restrictive government can all but kill the site if it fears free-speaking masses. Quepasa's faring even worse. Revenue plunged 46% in its most recent quarter after a 32% decline in monthly active users of its namesake website.
Would the market have been silly enough to bid up MySpace or Bebo over the past few days if they traded publicly as stand-alone social networking sites?
It wasn't all crazy. Recent debutanteJive Software (NAS: JIVE) -- a provider of social networking software for companies -- has mostly marched in place over the past three days. White-collar social hobnobbing website LinkedIn (NAS: LNKD) did pop initially on the Facebook news, but it's right back to where it was last Thursday.
This doesn't mean that Quepasa and Renren are destined to give back all of their Friday and Monday gains. Quepasa's in better shape than its recent financials suggest after completing the merger of myYearbook.com. Renren's still the top dog in China.
However, don't get caught on the wrong end of momentum plays. Since both companies are going to pop and crash plenty over the next couple of months, your best investing decision is to stay on the sidelines and watch the roller-coaster ride at a safe distance.
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At the time this article was published The Motley Fool owns shares of LinkedIn. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.