LinkedIn, Groupon, Pandora and others exploring IPO’s
LOL. BFF. BRB. IPO? That’s right. There’s a new acronym on the block in the social media neighborhood: IPO. IPO, short for Initial Public Offering, is a hot topic in the social networking industry, as serious players are starting to go public.
On May 19th, professional networking giant LinkedIn (LNKD) went public at $45 per share, putting the company’s valuation at a cool $4.3BIL. In its first day of trading, LinkedIn stock soared to more than $122 per share, and eventually settled at just below $95 per share, ending the day with a rise of nearly 110%. In just one day, LinkedIn’s valuation skyrocketed to almost $9 billion; not too shabby considering that value is higher than longstanding pillars of American business such as Harley Davidson.
The IPO fun looks like it’s just starting. LinkedIn may have been first in line, but many other powerhouse social media firms are following suit. On Thursday, Groupon, the most popular daily deal/group buy platform in the U.S., filed for its own IPO. The Groupon offering aims to raise around $750 million, and could result in a valuation upwards of $15 billion for the company. Groupon’s rise has been nothing short of astounding. In 2010, Groupon’s revenues increased more than 2,000%, and Forbes Magazine anointed them the “fastest growing company ever.” Groupon even had the confidence to turn down a $6 billion offer from Google. As shocking as the decision to turn down $6 billion appeared, it was a heck of a decision if the
IPO goes as planned.
Music streaming service, Pandora, appears to be in the IPO line as well. Their S-1 filing, Pandora is looking to sell more than 15 million shares at $7 to $9 per share, meaning they could raise in excess of $140 million, and end up with a valuation higher than $1 billion. Pandora will be traded on the NYSE under the ticker symbol “P.”
It remains to be seen which social media company will jump into the IPO madness next, but analysts and investors are salivating over that Facebook, Xenga, and Twitter might be considering going public in the next year or so.
The Big Kahuna in this discussion is certainly the social network Facebook, which could complete its IPO next year. If LinkedIn’s $4 billion valuation or Groupon’s possible $15 billion valuation seem shocking, your head may explode when considering that some analysts believe Facebook may already be worth $50 billion to $70 billion!
The recent IPO flurry in the social networking sector has some investors concerned that another dot-com bubble is around the corner. It was only 15 years ago when Netscape more than doubled in its first day of trading, and sparked an IPO craze that had investors jumping on all sorts of dot-coms, many of them terrible investments. By the time the year 2000 rolled around, the bubble was bursting, and the dot-coms were hit the hardest.
Tech gurus and analysts believe this time things are different. According to David Weir, CEO of SharesPost, a platform where investors can trade in private companies like Facebook, “If you look at the number of IPOs between 1990 and 2000, the average was over 500 a year, and during the bubble that was in the same ballpark. Since then, there have been 120 to 130 on average.” The decline in tech IPO’s is due to the strategy most
firms are employing – to stay private longer in order to build revenues and prove their value and sustainability.
Should you jump in and start investing in these social networking companies as they go public? Depends. One thing is certain, investors must be more realistic this time around. Learning from the mistakes of those who were burned in the dot-com bubble should help investors take a more realistic viewpoint, and hopefully make a killing in the stock market.