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What You Need to Know About the Seven Hottest Social Media IPOs

Tom Johansmeyer — Tue, 04 Oct 2011 13:00:10 +0000

The IPO market ground almost to a halt in the middle of August, but that doesn’t seem to have hit anyone’s lust for a celebratory opening bell. Even with a record number of canceled or delayed IPOs, we’re seeing a record number of companies filing. Among them, of course, are a handful of social media companies that people have been watching for a while, waiting for the big days.

There’s plenty of speculation out in the marketplace right now. Let’s take a look at where the seven hottest pre-IPO social media companies currently stand:

1. Facebook: that’s the one everybody cares about, right? And by everybody, I include the folks at Zynga, who have IPO ambitions of their own. Well, here’s the deal: nobody seems to know when Facebook is going public (except maybe Mark Zuckerberg, Sheryl Sandberg and a handful of others). In April, however, the social media giant is going to have to file with the SEC because it has more than 500 shareholders. When they are forced to open the kimono, an IPO is expected to follow. That could come in September 2012.

2. Groupon: can you believe these guys are still pushing forward? After several amendments to the SEC documents they filed with the SEC, because CEO Andrew Mason apparently loves to see his own words in the press, several senior-level employees have departed the company. Nonetheless, Groupon remains committed to going public.

3. TripAdvisor: this customer review site for the travel sector filed earlier this year and hasn’t said anything about altering its plans. So, there’s a chance Expedia will still spin it off this year. Of course, there are signs of trouble nearby: Kayak, which also plays in the online travel space, recently revealed that it’s deferring its IPO.

4. Glam Media: could this online advertising platform take the plunge? It’s still in the rumor stage right now, but the company has hired a CFO who has gone the distance before. That’s usually a good sign that the idea of going public is being bandied about internally.

5. Zynga: there are so many reasons for Zynga not to go public, but the company hasn’t pulled back from its filing. In fact, it issued an amended one last week, which left accountants wondering how to depreciate virtual assets. The consensus is that Zynga is a fairly strong company, and its brand will help with an IPO even in a volatile market.

6. LivingSocial: While Groupon is gung ho to go public, its competitor is showing more caution. The latest development may be to accept another round of venture capital money (amounting to $200 million), in lieu of a near-term IPO.

7. Twitter: you’re going to have to wait for this one. The earliest Twitter would go public, according to the rumors going around, is sometime in 2013. This might be smart. Twitter has some work to do developing revenue streams, making smart acquisitions and building out its platform with new features that have been owned so far by its application ecosystem. But, if Twitter can’t pull all this off, it will have missed an opportunity to cash out when expectations were lower.

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Did Zynga Lose Half Its Value?

Tom Johansmeyer — Tue, 04 Oct 2011 09:55:42 +0000

Zynga got spanked in the second quarter, with an earnings hit of around 95 percent year over year. The company hasn’t said anything about changing its plans to go public, but the outcome could be much different. According to an article on Motley Fool, experts say Zynga’s valuation may have dropped by as much as $10 billion!

Now, you’d expect a company with plunging earnings to take a serious valuation hit. And, since it’s not public yet and is still young, Zynga is ripe for a certain amount of volatility. It’s just the nature of the beast. So, it comes as no surprise that its valuation estimate would plummet from $20 billion to $10 billion.

Of course, the matter is made worse by the fact that this is the first quarter-over-quarter bookings decline Zynga has ever experienced. The fact that it’s a doozy only hurts even more. Bookings were off 4 percent, but that includes some revenue Zynga can’t recognize for a while (it will show up later: blame the inflexibility in depreciating virtual tractors). The earnings hit, however, can’t be ignored. It’s just way too big, even if other metrics seem positive.

Now, how much of that $20 billion valuation was legitimate is a subject of debate. According to Motley Fool:

“The $20B figure was thrown around back when (Zynga) filed and everyone was going bananas for the big Internet 2.0 names,” [Paul] Bard [of Renaissance Capital] wrote in an email. “But with the markets down 15% and given the 2Q bookings number, that seems like an aggressive target if it were to price the deal today.”

There is a certain “hype premium” at work with Zynga. After all, Motley Fool notes, TripAdvisor is set to go public this year and has comparable first-half earnings and faster earnings growth than Zynga.

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There’s Only One Place to Go for Social Media Stock Trading

Tom Johansmeyer — Mon, 03 Oct 2011 15:15:28 +0000

According to Peter Barris, managing general partner of New Enterprise Associates, a venture capital firm, secondary markets for shares in private companies are a “sideshow”. At the Dow Jones Private Equity Analyst Conference, he made it clear that venues such as SecondMarket and SharesPost are not where the real trading action is.

But, it is where you’ll find the handful of companies that interest you most.

Barris notes, “Places like SecondMarket are trading about 50 different names,” adding, “half of the volume is one name – Facebook. Toss in Twitter and Zynga, and you have the lion’s share of the volume.”

Now, places like SecondMarket and SharesPost are the only places you’ll be able to find the likes of Facebook, Twitter and Zynga … at least for now.

Don’t take this perspective as pessimism. The Wall Street Journal reports that Baris would “love to see the secondary markets become more widespread in terms of their adoption.” It’s easy to see why: these venues provide early exits for investors (including the venture capital community) and employees who have been waiting patiently for a while to cash out. As companies take longer to go public, especially relative to the mania of the late 1990s, trading in these environments can alleviate some pressure that could lead to talent implications.

And Barris puts his money where his mouth is.

His fund sold shares in Groupon in the secondary markets, pulling in $70 million “on top of a $14.8 million investment.” The fund still has a 14.9 percent stake in the daily deals site. He explains his reasoning:

“One of the problems with any offering is the overhang of venture capital ownership,” he said. “If you start metering that out at that point in time by taking 5% to 10% of your interest off the table — if the entrepreneurs take a little of their interest off the table so that there’s still plenty there to incent them–you could argue that actually lets you run the table,” said Barris, who led the firm’s first $4.8 million investment in Groupon back in January 2008 when it was called ThePoint.

What’s really interesting, however, is that the secondary markets themselves are living this way. This week, SecondMarket, which is also backed by New Enterprise Associates, announced it would let its employees sell as much as $13 million in SecondMarket stock via its own platform (at a valuation of $160 million).

This doesn’t mean that everyone’s on board, though. Bob Ackerman, of Allegis Capital, believes that these transactions don’t offer enough transparency. Eventually, he says to the Wall Street Journal, somebody’s going to get sued.”

He’s not the only one who isn’t crazy about the selling of pre-IPO shares on these private exchanges. Some companies are making moves to prevent such sales in their agreements with venture capital firms. One of the reasons for this is to limit the number of investors in a company. As Facebook has shown us, the world gets a lot more complex when you hit 500 – and face a number of SEC requirements.

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Five Reasons Zynga Shouldn’t Go Public Yet

Tom Johansmeyer — Mon, 03 Oct 2011 10:29:49 +0000

Zynga has a sky-high implied valuation, and it could wind up being worth much more at IPO. There are, quite frankly, billions of reasons for the social gaming company to pursue an IPO. But, is now the right time? Zynga is in a unique situation, because of its growth plans, financial performance and reliance on another company (Facebook) for so much of its revenue. There’s a lot of hype around the company … and plenty of risk.

So, will the biggest name in social gaming be able to use its brand to beat the challenges before it? Well, word on the street is that Zynga is one of the few companies that could go public in today’s difficult market conditions, but that doesn’t necessarily mean it should. We’ve all heard our parents tell us that patience comes to those who wait. Let’s take a look at five reasons Zynga should heed this advice:

1. You can’t ignore the second quarter results: when your earnings fall around 95 percent year over year, people notice. And they tend not to be impressed. Zynga did go the second quarter without a big release, and the results reflect that. Unfortunately, Zynga makes its money on big releases, so it will have to develop a plan for addressing these gaps in the future.

2. The market is still ugly: there’s a reason so many IPOs have been pulled this year – the market sucks. High levels of volatility following the downgrade of U.S. sovereign debt in mid-August turned the best year for the IPO market since 2007 around completely.

3. Google Plus isn’t enough: Zynga appears to be dealing with its Facebook-dependency issues by diversifying into mobile and Google Plus. Unfortunately, this will probably take a while to put even the smallest of dents into the share of revenue Zynga derives from Facebook. For it to make a difference ahead of an IPO, Zynga would have to wait a (long) while.

4. Bigger upside: even if Zynga could go public in this market, it might be able to fetch a higher valuation by waiting until markets calm down a bit. As long as the company doesn’t need an additional capital infusion (as some argue Groupon may), putting off the IPO for a while could give Zynga time to build out its strategy, increase its profitability and stabilize the business a bit. In the end, it would see a much higher IPO valuation, effectively rewarding patience.

5. Facebook isn’t going public until sometime next year: until Facebook goes public, it will have a lot more flexibility. This could be problematic for Zynga. Once Zynga goes public, it will be at the mercy of public capital markets. If Facebook makes a decision that is detrimental to Zynga – which, as a private company, it will be able to do more easily – Zynga would be exposed to incredible risk. And investors probably wouldn’t be too forgiving. Also, it remains to be seen how early investors would perceive the nature of the Facebook-Zynga relationship ahead of an IPO.

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Here’s What IPG’s Facebook Sale Means to the Rest of the World

Tom Johansmeyer — Wed, 17 Aug 2011 09:10:41 +0000

Interpublic Group made a smart play in 2006 and picked up some stock in Facebook at a nice, low price. And now, the ad conglomerate is cashing in – unloading half its stake through a private sale. That’s good for a pre-tax profit of $132 million. Not bad for a single trade, right? Well, there’s more to this than a simple transaction. In fact, IPG’s unloading the stock means a lot for the rest of us. Here are the top five ways you’re affected by this:

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The Latest from Groupon: Eight Brutal Facts

Tom Johansmeyer — Thu, 11 Aug 2011 11:55:14 +0000

Groupon just can’t seem to find its feet. Before it initially filed to go public, it was lauded as the top deals site on the web. In no time, it grew a substantial operation reaching thousands of merchants and millions of users. And then, with its first S1 filing, the honeymoon ended. Lack of profits, founders pulling big piles of cash out of the operation (via dividend payments following venture capital infusions) and merchant frustration were among the issues that surfaced.

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Twitter and Others to Block Shareholders from SharesPost and SecondMarket

Tom Johansmeyer — Mon, 08 Aug 2011 14:35:15 +0000

Have you been following the action on SharesPost and SecondMarket? These exchanges for private company stock have attracted a hefty amount of attention, as they’ve given some insight into the valuations that companies like LinkedIn, Pandora and even Facebook could fetch at an initial public offering. Former employees, especially, have been unloading shares in order to recoup some of what they sacrificed in salary. The dollars flowing through are staggering.

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Mint.com Personal Finance for iPhone App Lets You Tag Location to Expenses

Todd Ogasawara — Thu, 28 Jul 2011 01:28:01 +0000

Mint.com, the web-based personal finance site owned by Intuit, updated its iPhone app. One of the new features is something all of us are aware of when tracking expenses but never (or rarely) formalize when tracking finances: Location.

Introducing Manual Transactions for iPhone

The updated Mint app now permits manually entering an expense (vs. automated tracking of credit card or check payments). And, geographic location can be added to these manually tracked expenses using Google Places to identify businesses. This can be especially useful when traveling to track those incidental expesnses.

The enhancements and new features in this update are:

- Add transactions from your iPhone, so you can track expenses and income on the go.
- Uses Google Places to help you find a merchant when adding a transaction.
- View your available or current balance, along with pending transactions, for each account.
- Fixed a bug that prevented some users from searching for categories.

Mint.com Personal Finance (iTunes App Store)

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BIG MONEY: Social Media and Consumer Web Dominate SecondMarket Action

Tom Johansmeyer — Wed, 27 Jul 2011 14:26:59 +0000

Where is all the money going? Well, it’s easy to find out on SecondMarket these days. The New York-based marketplace for private company stock has just released its second-quarter/first-half results. To check out the infographics from the SecondMarket report, take a look at the slideshow immediately below. Then, dig deeper into the 11 major insights that we have identified from the report. Some of what you see will definitely take you by surprise.

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Is LivingSocial Talking to Bankers About an IPO?

Tom Johansmeyer — Thu, 30 Jun 2011 12:30:17 +0000

Groupon isn’t the only social deals company looking to move from Main Street to Wall Street. According to Reuters, LivingSocial is getting ready to make the plunge into public capital markets. The company is said to be meeting with banks and is seeking to raise $750 million in capital in an initial public offering. It’s said to be valued at between $10 billion and $15 billion.

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Will Zynga Finally File for Its IPO Today?

Tom Johansmeyer — Thu, 30 Jun 2011 09:39:33 +0000

Yesterday, the internet was abuzz with speculation about a Zynga initial public offering filing. Alas, it didn’t happen, but speculation continues. Hope remains that the social gaming company will file with the SEC today. Continuing a trend in the tech IPO market, a small float is expected – Zynga apparently plans to offer approximately 10 percent of its shares. The expected market cap would be in the range of $15 billion to $20 billion. LinkedIn and Pandora also had small floats.

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Once Facebook Runs Out of People, It Will Need New Products

Tom Johansmeyer — Thu, 16 Jun 2011 11:00:46 +0000

Add this to the list of reasons Facebook needs to develop new revenue streams… it’s running out of new users. According to estimates from eMarketer, the social network will have 132.5 million users in the United States in 2011, reaching 152.1 million by 2013. This year’s 13.4 percent growth rate will fall to 8.2 percent next year and 6.1 percent in 2013. The days of high growth rates are clearly over, at least in mature markets.

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View From the Floor: Pandora’s IPO at the NYSE [PHOTOS]

Tom Johansmeyer — Wed, 15 Jun 2011 16:33:15 +0000

Internet radio company Pandora went public this morning on the New York Stock Exchange. After the price was set at $16 a share last night, following a range of $10 to $12, the stock opened at $20 a share and went as high as $25 before pulling back to around $22. The excitement on the floor was palpable. The Pandora executive team rang the opening bell, and a throng of employees and guests of the company (identifiable by their gold badges) mixed with the crowd of brokers and media at the Knight post where Pandora was being traded. continued…

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UPDATE: Pandora Could Break $2 Billion Mark

Tom Johansmeyer — Tue, 14 Jun 2011 09:44:03 +0000

Not long ago, Pandora was looking to go public at a valuation of $1.3 billion. Well, that was last week. By Friday, the company upped the ante to around $1.9 billion, and today, the number is $2.1 billion – if it goes public at the mid-point of its price range of $10 to $12. Expectations are mounting rapidly for the company that could be going public on the New York Stock Exchange as early as tomorrow.

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Pandora Wants More and More from IPO

Tom Johansmeyer — Tue, 14 Jun 2011 08:51:06 +0000

It may not be profitable, but it sure seems to be in demand. Pandora, which brings streaming music to employees avoiding productivity in businesses large and small, is upping the ante with its IPO, according to a report from AllThingsD. Simply put: the price is already going up.

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