2011 has been quite a busy year for everyone. There has been the usual share of thrills and spills to go around plus an abundance of happenings that will make 2012 that much more exciting.
A highlight that caught everyone’s attention was how many online companies decided to jump into the public market. Corporations like LinkedIn and Groupon hit the stock market hard and emerged with varying results. Some companies have made a particularly big splash, such as Groupon, Pandora Media, and Zynga. NetHosting has published case studies on these three companies, among others, and thought it would be interesting to check in on a few of them to see how they faired in the public market.
Groupon, the neighborhood “deal-of-the-day” finder, announced they would be going public on the third of November 2011 with an IPO of $510 million, being valued at USD 11.2 billion.
Groupon was confident due to an increase of revenue of over 426%, going from $81.8 million in 2010 to $430.1 million. They also scaled back their net loss from $49 million to $10.6 million in 2011. They were also a growing company with membership rising from 21 million in 2010 to 143 million in 2011.
Groupon tried to convince investors that they were on stable ground but still faced some challenges. One was the question of the company’s profitability. Although Groupon provided a popular service, they didn’t seem to be generating too much money and the market for group coupons seemed to be saturated with other competitors. A similar company, BuyWithMe, also appeared to be dying, and it didn’t invoke the most confidence in potential investors.
Groupon engaged these concerns by diversifying their market, slashing margins in order to appease merchants, and decreasing their IPO considerably. This provided Groupon with just enough stability to make quite the showing on the NASDAQ. On the 4th of November, Groupon released 30 million shares priced between $16.00 and $18.00. Within the same day, shares jumped over 50% to a high of 29.52 and soared passed their initial IPO, collecting $700 million, putting Groupon’s value a $12.65 billion, and becoming the largest internet IPO since Google in 2004. But Groupon’s growth would remain anything but constant. Groupon stocks have been erratic since then with stock prices going as high as $31 and as low as $14.
Probably Groupon’s biggest challenge is still the question of its profitability as a company. It will become increasingly difficult for Groupon to find progressively better deals among most merchants during a difficult economic period.
Pandora Media (P)
In the beginning of 2011, Pandora Media started filing for an IPO of USD 100 million. The date was set at the 15th of June 2011 with shares selling at $16, putting Pandora’s value at $2.4 billion.
Pandora backed the IPO with an assurance of over 80 million subscribed users, 80,000+ artists, and over 800,000 tracks as of 2010. Pandora also exhibited constant growth. In 2009, Pandora had 22 million users and in early 2011, when Pandora filed for the IPO, they escalated to 80 million users. Pandora also decreased net losses to $1.8 million in 2010 from $16.8 million in 2009. They also started expanding from personal computers to mobile devices, cars, and other music playing devices.
On June 15, Pandora shot out from the gates into the public market with these credentials. Like Groupon, Pandora had an extremely intense and quick sale of stocks with prices immediately jumping up 26%. But in that same day, the heat cooled down and the stock declined down to $17.42 at the close. Currently, Pandora stocks continue to sink. Throughout December, their stocks were selling between $9 and $10.50 a share and are currently 34% below their IPO. Many analysts are attributing this to the development of competitors such as Spotify. Nevertheless, Pandora membership is still growing with 100 million users as of July 2011.
Zynga is the newest of these three IPOs to go public and has been accumulating the most news. NetHosting recently released a blog post showing what Zynga was bringing to the market. Let’s see how they turned out.
Zynga finally went public on the 16th of December with an IPO of USD 950 million, selling 100 million shares with prices between $8.50 and $10.00. Zynga raised $1 billion, replacing Groupon and becoming the largest internet IPO since Google. But after the first day, trading fell 5% and the offering prices dropped down to $9.50 a share and is currently staying in the low 9s.
Many analysts claim that even Zynga’s slip has to do with a limited profit. Zynga’s intricate ties with Facebook decrease their profitability substantially and profits coming from users are just a small fraction.
Another reason has to do with a lopsided stock allocation. Mark Pincus, Zynga’s founder is allotted 36.2% while publicly traded stocks have only 1.8%. This lack of control scares many potential investors away.
Another worry many investors have is the lack of a fall back positions. If a Zynga games flop, Zynga has a scarce amount of products they can fall back on for profit, whereas EA Games has a wide variety. However, Pincus assures investors that investing in Zynga is investing in a long-term profitable future driven by newer methods of social gaming. Pincus defends the IPO, stating, “There are a lot more days ahead and we want to focus on delivering spectacular results over the next three years.”
What to Expect in 2012
All in all, it seems that the social media IPOs had a hard time in the pit. After a huge spike in profits and user growth, these social media giants seem to have proven the old adage that the bigger you are, the harder you fall, at least in the stock market. However, although each company specializes in something entirely unique, each are pioneers in their own realm, and many people are claiming, including analysts and spokespersons for Groupon, Pandora Media, and Zynga, that those who invest in their companies are investing for the long-term and not for immediate earnings.
So as the rest of us are looking toward the New Year with our own goals and resolutions, some of the web’s biggest companies of 2011 will be planning how to keep a hold of the headlines through 2012.