Thank you, me, for not buying into the over-hyped IPOs

This year I'm thankful I didn't buy any Groupon, Zynga, or Facebook shares

Financial trends and news by Faith Merino
November 21, 2012
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This year, I had to wrack my brain a bit to think of what I’m thankful for, which is not to say I’m not generally grateful.  I’m very thankful for my family and friends, my house, Starbucks drive-thrus, and Spanx.  But all of that is a given.  Who isn’t thankful for Spanx?

And then it became clear.  This year, I’m thankful to ME—for not buying shares of over-hyped Internet IPOs.

It’s kind of funny actually, because I was watching “Meet the Parents” the other day (for some reason…) and there’s a part in the movie where Owen Wilson explains his enormous wealth very nonchalantly by saying he got in on some Internet IPOs.  That movie was made back in 2000, right at the tail end of the Dot-Com boom.  If you only knew, Owen Wilson…if you only knew.

And now here we are, 12 years later (seriously, “Meet the Parents” is 12 years old), and we’ve seen a slew of over-hyped Internet IPOs break out with sky high numbers, only to deflate miserably within a few months. 

Case in point: Groupon.  It’s a sad tale.  After debuting in November 2011 at $20 a share, Groupon’s stock tanked 90%, reaching a low of $2.60.  It has since climbed back up to $3.40 a share after hedge fund Tiger Global Management bought a 9.9% stake in the company.  The hype surrounding Groupon was unreal.  I won’t lie—I was also swept up in the frenzy.  At one point some time before the IPO, Groupon was rumored to be worth as much as $30 billion.  Yes, the company that has been deemed the worst performing U.S. stock of the year was once believed to be worth $30 billion.  Its current market cap is $2.23 billion. 

It’s ironic, since CEO Andrew Mason was said to keep a copy of the magazine cover featuring the CEO on the wall in his office, to remind him of the illusory nature of tech startup fame.

Another example: Zynga, although in Zynga’s case, the stock never really got off the ground in the first place.  After pricing its shares at $10, it saw a modest 10% pop before closing its first day at $9.50.  Several execs have jumped ship—in fact, earlier this month, Zynga lost its VP of Business Development, Jonathan Flesher.  The company also lost its CFO, David Wehner, this month, as well as its COO John Schappert in August, its Chief Creative Officer Mike Verdu in August, its Chief Security Officer Nils Puhlmann in September, and many more. 

The hype leading up to the Zynga IPO had rumors swirling of a $7-$20 billion valuation.  Yesterday, Zynga closed at $2.25 a share for a market cap of $1.78 billion.  

And then there was Facebook. 

Ah, Facebook.  When the company that essentially created the social graph made its public debut in May, it priced its shares at $38, which some analysts were questioning at the time, but the hype was too strong!  It steamrolled everyone!  After popping some 18% on its first day, it closed at $38.37, and it’s been all downhill from there.  After hitting a low of $17, FB shares have climbed back up to the mid-20s, closing Tuesday at $23.10 for a market cap of $50 billion. 

Analysts’ price targets are all over the map, some cutting their targets as low as $15 a share, while others have put their targets at $34 a share.  It’s all very confusing.

In the hype leading up to the Facebook IPO, there was talk of Facebook being worth over $100 billion.  And, indeed, on the first day of trading, the market cap was $105 billion.  But remember all the second market trading, where Facebook shares were going for upwards of $60 a pop?

But if I’m going to be honest, Facebook is like my imaginary on-again/off-again boyfriend.  I say we’re over—we’re never, ever (ever) getting back together.  And then I’m sucked back in and checking on FB’s share movement.

All of the hot air surrounding Internet IPOs is enough to turn me off of Internet stocks altogether.  But if I’ve learned anything from Owen Wilson in “Meet the Parents,” it’s that the best strategy is to get in on IPO stocks in the late ‘90s and sell in 2000.  That’s my investing strategy.

So, looping circuitously back to my original point: Thank you, me, for not blowing my cash on puffed up Internet IPOs.  [Note: this is not the first time I’ve thanked myself on Thanksgiving.]


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