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Keep An Eye Out For These IPOs
Social media’s role has grown in everyday life, enabling people to communicate from anywhere in the world. A few companies have profited tremendously from the technology's increasing popularity. Moreover, the success of these firms will likely encourage them to list shares on the equity markets, hoping to become the next Google (GOOG). In fact, the current clamor for IPOs in the social media space should bring back memories of the dot-com period, when internet wizards became billionaires overnight.
When one talks about social media, the conversation has to start with facebook. Mark Zuckerberg and fellow computer science students at Harvard University founded the website in 2004, with the goal of helping students share information. The site’s membership was initially limited to Harvard students, but was soon expanded to other colleges and subsequently to anyone aged 13 and over. As the company grew, it was rumored to be the buyout target of established technology giants, including Yahoo! (YHOO). But the budding entity resisted.
Over time, the number of active users has grown from a few thousand, to an estimated 600 million. Facebook expects this growing, and loyal, customer base to lead to a surge in advertising revenue, along with fees for other services. Due to this optimism, the company’s share price has surged in value on SharesPost and SecondMarket, two exchanges that allow trading of private companies, to reportedly more than $50 billion. Mark Zuckerberg has thus far resisted overtures to take the company public, supposedly in order to maintain control. More likely, he is buying time in order to convert high traffic into more dollars. The company is purported to be on track to generate $2 billion is sales this year, which would be a substantial year-over-year increase.
While facebook has achieved a relatively high penetration rate in North America, usage is lower in many countries in Asia, Africa, and South America. These markets should be key to future growth. One caveat: facebook is banned from the world’s most populous market, China.
Twitter is another powerhouse in the nascent social networking and micro-blogging world. Since launching in 2006, the company has attracted 200 million users worldwide, generating 65 million tweets a day. Co-founder Biz Stone has declined IPO offers, but a listing is probable later this year or in 2012. In the meantime, he is focusing on efforts to optimize a platform of products (tweets, advertising, and a database of 70,000 applications). While the company does not disclose financial information, sales generated through advertising are supposedly on pace to increase more than three-fold in 2011, to $150 million. Twitter is rumored to have turned down buyout offers from Google and facebook that value the company at $5 billion to $10 billion.
In 2008, Andrew Mason started Groupon, a website that features discounted gift certificates usable at local or national companies (restaurants, department stores, etc.) In the last three years, the company has expanded rapidly into more than 150 markets in North America and 100 in Europe, Asia, and South America. Unlike other upstarts mentioned in this article, Groupon has grown through a plethora of acquisitions. Moreover, the company has more than 35 million registered users, and is reportedly set to generate a top line of $3 billion-$4 billion in 2011. Impressively, it achieved $1 billion in sales faster than any business in history. Momentum should continue. In the U.S., Groupon is scheduled to enter new marketing categories and aims to cater to small businesses. On the international scene, management is set to start operations in China, home of 450 million internet users.
Groupon’s surging business is met with an equally eye-popping valuation, which is rumored to be $15 billion-$20 billion. Empowered by the fact consumers remain on the lookout for good deals, the number of subscribers has doubled in the last six months. Still-surging growth likely empowered management to turn down a $6 billion offer from Google just months ago. Groupon is holding talks about a possible IPO during the second half of 2011.
Just as first-generation smart phones and 3-G networks gave way to the development of mobile apps and social media, ongoing advancements in broadband technology have the potential to power social media to greater heights. Accordingly, while the IPO valuations of facebook, Groupon, and Twitter will likely be lofty, the undeniable popularity of these businesses may provide ample justification. To wit, LinkedIn (LNKD) was the first social networking site to hold its IPO, debuting today at $45 a share, giving it a $4.25 billion market capitalization. Consequently, this was the biggest U.S. Internet IPO since Google. The company, which caters to working professionals looking to connect with others and expand their business networks, stands to benefit from being the first in this sizzling sector to go public. LinkedIn boasts more than 100 million registered users and generates revenues from the sale of recruitment tools to businesses, online advertisements, and premium subscriptions. Optimism about the issue likely stems from the fact that LinkedIn’s role in professional networking is growing in many corners of the world.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.