Sunday, July 29, 2012

The Social Media Bubble: Who Won? (FB; P; GRPN; ZNGA)

From Reuters:

Social media companies, once hailed by their Silicon Valley boosters as world-changing businesses with limitless potential, are instead proving a sobering reminder of how investors can be seduced by Internet hype.
With a few exceptions, the first wave of social media firms to trade on the public markets has delivered a disastrous performance that conjures memories of the dot-com bust of 2000.

"Farmville" publisher Zynga, which went public in December at a valuation of $7 billion, is trading around $3.15 a share, more than 68 percent off its $10 IPO price.

Daily deals site Groupon, touted as the firm that could reinvent local commerce, has fallen from its $20 IPO price to about $7.15 in nearly nine months. Music service Pandora Media has dropped from $16 at its June 2011 IPO to around $10 on Friday.

And on Thursday, the 800-pound gorilla of the group, Facebook Inc, reported tepid results that shaved some $10 billion off the company's market cap. The stock has gone straight down since its botched May initial public offering and now trades over a third below its $38 IPO price.

"The VCs, the private equity guys at the early stages, already cashed out and made their fortunes," said Peter Schiff, chief executive of Euro Pacific Capital. "Everybody else who ran to buy the stock at the IPO at a sky-high valuation ended up holding the bag."

"A lot of these companies are going to make a quick buck and flame out," he added. "Just look at 10 years ago."

If an investor had sunk $1,000 into any of the four erstwhile dotcom darlings, he would have anywhere from $317.50 to $706.45 left over. That same wad of cash in LinkedIn would have more than doubled, to about $2,200.

But many VC firms -- such as early Facebook backer Accel Partners -- made a killing on the IPOs by getting in the door first. Early backers in Pandora, for instance, may have picked up shares in the firm for as little as around 50 cents apiece....MORE