Here is the other side to the IPO boom. It looks like Groupon and Pandora are next!


How to invest in the social-networking IPO boom

What to know about Groupon, Twitter and Wall Street’s next tech craze

 By Rex Crum, MarketWatch

SAN FRANCISCO (MarketWatch) — Call it a wave or a bubble, or something else entirely, there is no question that initial public offerings of social-networking companies have taken hold of the minds — and wallets — of investors looking to get in on the next big thing in tech stocks.

As if any further evidence of that was needed, it was found in the May 19 IPO of online professional-networking company LinkedIn Corp. LNKD -1.44% , which went public at $45 a share, climbed as high as $122.70, and ended that day at $94.25 — a gain of 109%. Following that initial burst LinkedIn’s shares have settled a bit, trading at around $77.50.


Tech ‘bubble’ is on table at D9: Technology executives, including Groupon’s Andrew Mason (above, right), label the current frothiness in the Internet market as the early days of a boom, not a certain sign of a bubble. 

But the response to LinkedIn has set the stage for other social-media IPOs, including the anticipated stock offerings of the biggest of the social-media giants, Facebook, which is believed to be readying itself to go public next year.

On Thursday alone, online daily deal site Groupon filed to go public with an IPO aimed at raising $750 million, while streaming radio company Pandora set a price range of $7 to $9 a share for its upcoming IPO. And investors are also eager for IPOs that are expected down the road from the likes of Twitter and social-gaming company Zynga.

“For a while, an IPO wasn’t seen as a viable exit option. If the market is coming back to life, that’s probably a good thing,” said Bill Maris, managing partner of Google Ventures, the venture capital unit of Google Inc. GOOG -0.38% .

“It’s a commitment when you make an investment, and we want the companies we invest in to grow and be successful,” Maris said. Last week, for example, Google Ventures made an investment in Kabam, a social-gaming company that claims to have 60 million users. Google Ventures didn’t disclose the dollar amount of its stake.

Bubble trouble

While social-media companies are in the tech spotlight, so are questions about the enthusiasm for investing in the social-media sector. Looking at LinkedIn’s rocket launch, it’s worth remembering how shares of Internet browser company Netscape more than doubled on their first day of trading in August 1995. That IPO helped spark a dot-com mania that by early 2000 had investors swarming over dubious newcomers including online grocer Webvan and pet-products retailer

Is another Internet bubble on the way, or does the business of social-media companies differ significantly from the Web darlings that captivated the market in the first dot-com boom — and fell hardest in the subsequent bust?

Groupon, Pandora add to Internet IPO frenzy

Investor enthusiasm in the online sector will be tested again as Groupon files to go public and Pandora sets its IPO price. MarketWatch’s Rex Crum and John Letzing talk about what’s in store for both companies.

“Is this a bubble?” asked David Weir, chief executive of SharesPost, an online platform for investors to gain access to stock in privately held companies including Twitter and Facebook.

Weir doesn’t think so, at least when it comes to the pace of IPOs and the quality of the companies in the pipeline.

“If you look at the number of IPOs between 1990 and 2000, the average was over 500 a year, and during the bubble that was in the same ballpark,” he said. “Since then, there have been 120 to 130 on average.”

Weir said part of the decline in IPOs, especially among tech companies, is because companies are staying private longer and building up evidence of actually being able to do real business and generate revenue, if not profits off the bat, than was true in the past.

All of which makes these social-media outfits particularly attractive when they do go public. “There are fewer dynamic companies to invest in and that is driving the appetites of investors,” Weir said.