So far in 2011, there has been a variety of IPO-related news surrounding the Internet and social media industries.
We’ll first look at Groupon, which last month, fresh off turning down Google’s $6 billion acquisition offer raised $950 million, the largest investment round for a startup in history. This news came alongside rumors of an IPO as early as this Spring at a whopping $15 billion valuation. Maybe they’re not crazy after all for passing on Google’s attempted takeover.
Still, I’m left to ask, “what’s the rush?” Again, this company is just over two years old and has continued to grow at a remarkable rate. Running to the public markets now raises questions around whether internally the company might feel its valuation has peaked and is looking to take advantage of that bubble. There are a number of well-funded and established competitors, and the barriers to entry are small for other large players like Google and Facebook. Further, considering the average quality of businesses coming through the pipeline these days, the miscalculated Super Bowl ads, and the recent Valentine’s Day FTD PR gaffe, I have concerns about Groupon’s ability to maintain its brand image long-term.
Next, we’ll turn to Demand Media’s IPO in the last week of January. On its first day of trading, the company’s stock shot up more than 30%, but while that was lauded as a sign of success for the company, most people failed to realize that means the investment bankers responsible for taking the company public just didn’t do their jobs well enough and priced the stock too low. Regardless, Demand raised more than $150 million and is now valued at over $1.7 billion, and who am I to say that’s not a success?
I have two primary concerns here though. As a content farm, Demand Media is steadily rising up the ranks on Google’s Most Wanted list, and considering that Demand Media depends primarily on its placement in Google’s search results for revenue, this is a risky situation. If Google takes significant action to prohibit the growth of networks like these (and I hope they do), then that will seriously diminish Demand’s value proposition. Second, Demand’s financial statements reveal some questionable accounting methods, which make the company look much closer to profitability than it actually may be. From my perspective, this company screams bad karma, and unless Demand can drastically improve the overall quality of its content, I wouldn’t touch it with your ten-foot pole. Here’s a link to one of my favorite articles on the event.
Now, not to be just a Debbie-downer, I should mention two other companies that recently filed for IPOs, and these, I happen to think, are model businesses, which should do well now and in the years ahead. The first is LinkedIn, the well known professional social network, and it appears that this IPO will serve as quite the payday for its founder, Reid Hoffman. LinkedIn has done a terrific job of understanding its users’ needs and wants, and by establishing itself as the clear frontrunner among professional circles, the company is in an enviable position for the monetization of corporations and individuals.
The other recent filer is Pandora, the (hopefully) equally well known music streaming service, which I happen to think is one of the coolest companies from the last decade. Avenues for growth are plentiful through mobile devices, internet-enabled TVs and players, cars, etc. and as long as the music industry doesn’t foul up the distribution deals like television studios are doing with Hulu, Pandora will continue to grow. Speaking of Hulu, what happened to their IPO?