Review of Tech Stock IPOs – the Winners and Losers

It seems that tech stocks are on the agenda again. After the first tech stock bubble burst investors became extremely wary of technology stock, especially Internet stocks, and started to question the valuations that many companies have been given. This year we have seen IPOs from Demand Media, LinkedIn, Yandex and Groupon.

The hot news at the moment is that of Facebook’s imminent flotation. Currently it is valued at around $100 billion, however, annual revenue from advertising is “only” and few billion dollars. Either way, the Facebook IPO is set to dwarf even the mighty Google. If the valuation of Facebook is accurate this means that Facebook will be one of the largest companies in the world, bigger than Tesco Plc..

Before looking at the tech stock IPOs of 2011, lets remind ourselves of the great success story, Google.com.

Google Corp. NASDAQ: GOOG – IPO $1.67 billion in 2004

Google’s IPO, underwritten by Morgan Stanley and Credit Suisse First Boston, was on 25th August, 2004. It released 19,605,052 shares at $85 each which raised $1.67 billion. Google was valued at $23 billion. A majority of Google’s shares (271 million in total) remain in Google’s control. Yahoo! is one of Google’s biggest shareholders, owning 2.7 million shares (see Yahoo and Google Settle from internetnews.com for more on this).

Google IPO: a success. Google today is trading at $628.79. See www.google.com/finance?cid=694653 for the latest prices.

Demand Media NYSE:DMD – IPO 1.3 billion – January 2011

Demand Media announced its IPO in January 2011. It’s IPO price was declared to be $16-18, valuing the company at $1.3 billion. It was $22.68 per share on the close of its first day trading. Since then its share price has fallen to $8.02.

Demand Media IPO: A loser. Demand Media has lost 2/3 of its value since the IPO.

Demand Media’ strength was in volume of content online and a readership that relied heavily on search engines (Google search referrals mostly). In February 2011 Google started making some ground-breaking changes to its search algorithm (the Panda, EMDm Page Layout and Penguin updates) and this has seen some parts of Demand Media suffer. Some of its brands lost huge numbers of daily readers. eHow.com lost 53.46% of its business and eHow.co.uk lost 72.30% (source: Google ‘Panda’ update downgrades UK tech sites – and Microsoft’s Ciao – 13 April 2011).

Yandex – IPO $1.3 billion – May 2011

Yandex is the Russian search engine and Internet media giant. See Yandex IPO at $25 a Share – The Russian Search Engine. It listed $1.3 billion of stock on the NASDAQ in May 2011 and started trading at $25. It finished trading at $38.84, however, it has since fallen to $21.50.

Part of Yandex’s strong early performance was attributed to a huge demand for tech stocks in general. Yandex is a huge company with a diverse offering and still a strong contender for the long-term. It is looking to expand in Europe and may start to provide more English language services. However, it is currently an IPO loser.

LinkedIn – IPO valued company at $3 billion – May 2011

LinkedIn.com proposed an IPO that valued it at $3 billion. It started trading on 19th May 2011 at $45 and closed at $94.25, more than doubling in value on the first day. Today it is trading at $69.81 which still represents a very healthy growth on its initial offer.

LinkedIn is still developing its revenue model. It has a huge number of professionals listed on its database, it is the business networking equivalent of Facebook. Like Facebook it is building its own advertising platform so that its users can drive more business to their profiles and websites through contextually driven and targeted advertising campaigns.

Overall LinkedIn is still a winner, although it has started to struggle in recent weeks as investors start to question the durability and reliability of its revenue model.

See www.google.com/finance?q=linkedin for the latest prices.

Groupon NASDAQ: GRPN IPO $700 million – November 2011

Second to Google is Groupon which had its IPO this year (see Groupon IPO Raises $700 million). Groupon shares started trading at $20 and reached $29 on their first day of trading. However, share price has fallen in recent weeks to $19 after reaching a high of $31.14.

Groupon IPO: a rocky ride, but steady now. One to watch!

Future Tech Stock IPOs

The big news is that Mark Zuckerburg is gearing up for a Facebook IPO. Currently the company is valued at $100 billion, making it the largest tech stock IPO ever, if it goes ahead and floats.

Other tech stocks looking to float include Zynga. Zynga is a social games maker with many of its games popular on Facebook. It really is a case that much of Zynga’s success is driven by Facebook. Zynga is the company behind popular social games such as Farmville, Mafia Wars and CityVille. It also has Zynga Poker, branded as the World’s largest free-to-play online poker game, which can be played on smartphones and Google+ in addition to Facebook.

Technology stocks are looking strong again at the moment. While traditional retail suffers the Internet continues to look strong – maybe the two are more closely connected that first assumed. Can the Internet be slowly eroding to dominance of the traditional high street brands? Amazon.com destroyed all but a few high street book stores. Talking of Amazon, that was one of the first big tech stock successes. It started trading at $13 on 15th May, 1997, valuing the company at $300 million. Today it is trading at $196.98, another huge success.

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