Ahead of Zynga's IPO, 2011 Internet IPOs not so stellar

Demand Media, Pandora limp through first year; Angie's List, LinkedIn, Groupon, Zillow fare better

Ahead of Zynga's upcoming IPO this week, one question that comes to mind is: How'd the market fare this year for the 2011 crop? 

From the looks of it, the market treated some OK while others were received with reservations. It wasn't a bleak year for performance, mind you, but it wasn't an outstanding year either.

And, despite the fact that the IPO market may seem active, economic insecurity slowed the IPO activity this year in the third and fourth quarters, leaving the market with a less-than-stellar showing in market debuts. Capital raised globally is down by 45% year-to-date, according to Ernst & Young research released Friday.

This year's global public debuts reached $155.8 billion, with 1117 IPOs -- down 20% compared to all of 2010. Across all sectors, 72% of the global capital was raised in the first half of the year.

The IPO activity in the US did moderately better than the global trend with a 16% drop in capital raised -- $43.5 billion for 163 deals in 2010 compared to the $36.4 billion for 114 IPOs so far this year. 

Worldwide, high technology comprised 137 IPOs -- just over 12% of the total market.

“The key to the IPO market recovery lies in the speedy resolution of the European debt crisis, which is likely to have a stabilizing effect on the global capital market and restore investors’ confidence," Maria Pinelli, global vice chair strategic growth markets for Ernst & Young, said in a statement.  "Many fast growing companies will continue to look at IPOs as a way of raising capital and remain at the heart of their growth strategies.”

While the global trend was that most debuts occurred in the beginning of the year, Internet tech companies welcomed new capital on the market in the end of the year with only two of the six big debuts prior to June 1, but only saw one company, LinkedIn, really soar through its first few weeks on the exchange. 

 

Ticker: DMD
IPO debut: January 26.
IPO price: $17.
Now trading at: $7.77.
Revenue for first 9 months of 2011: $240 million.

The online media company and content farm that operates online brands such as eHow, and Cracked, Demand Media, kicked off the year with a pop on its January IPO, but has shown through the year that the company was clearly over-valued now that it trading at less than half of its debut price. 

Shares of Demand Media closed 33% higher on its debut day, valuing the company at more than $1.5 billion and went on to report $240 million of revenue for the first nine months of the year, but that was not enough to keep demand high for the company on the public market.

Much of the loss was due to the continued SEC filings that showed the company was failing to remain profitable, despite its ability to bring in revenue.  

The company also felt a pinch when Google changed its algorithm and most of its content appeared significantly lower on the search returns than it had in the past -- lowering traffic to the sites it provided content to.

Demand Media looks as though it could close the year, a substantial 50% below its debut price, with little news of how the company will embark on a recovery.

Ticker: LNKD
IPO debut: May 19.
IPO price: $45.
Now trading at: $71.89.
Revenue for first 9 months of 2011: $354 million.

The professional networking site, LinkedIn, saw one of the greatest public debuts of the year when it opened at $45 and immediately shot up to over $120, ending the first day of trading at $94.25.

LinkedIn also has shown that it could be profitable as it entered its public trading and disclosed that it made $5 million in profit for the first nine months of the year.

The company also continued to unveil new revenue models throughout the remainder of the year (including the plans for a Talent Pipeline service for recruiters to pay for assistance in tracking possible candidates.)

While the initial spike was extremely promising to investors, but the extreme jump could not be maintained and LinkedIn look as though it will end the year, a fair 62% above its initial price.

Ticker: P
IPO debut: June 15.
IPO price: $16.
Now trading at: $9.90.
Revenue for the first 9 months of 2011: $168 million. 

Even though the smart streaming music service prepared its investors that the company would not be profitable until well into 2012, the demand for shares in Pandora pumped the initial soft offer of $7 per share up to the final debut price of $16 per share.  It appears that it would have faired better for the company if the soft offer of $7 was followed through on since the company took a nose-dive in the fall.

While Pandora saw the expected opening pop up to $26 in early trading, the stock closed remarkably close to the opening at $17.42.

Pandora continued to see blows to its stock through the year as public disclosures on quarterly forecasts continued to show low expectations and in November the stock saw a 33% drop.

The company stock is now trading at 62% of what it opened at in June and may not see significant positive movement until the company returns a format that it will finally see profits.

 

Ticker: Z
IPO debut: July 20.
IPO price: $20.
Now trading at: $24.77.
Revenue for first 9 months of 2011: $46 million.
 

Zillow is one of several real estate search sites that has seen great increases in traffic and finally the company filed for IPO in April. The company showed that it saw a significant 74% jump in revenue in 2010 to $31 million.

The revenue alone showed promise for the real estate-centric company but, like many tech startups, Zillion was not profitable and lost $7 million in 2010.

When the company opened its trading on July 20, the stock popped 120% and closed out the day nearly 80% above the $20 debut price.

Zillow soon fell victim to the spiky real estate demand and environment and saw inconsistent movement on the market. While the company is still above its IPO price by nearly 25%, it has yet to show any reliability in its market movements.

 

Ticker: GRPN
IPO debut: November 4.
IPO price: $20.
Now trading at: $23.33.
Revenue over the last year: $1.3 billion.

Known as the largest and first to see significant following in the group-deal buying industry, Groupon made serious waves as it went public this fall. There was a great deal of debate over the valuation of the discount-focused company as it continued to get slammed in the press for hurting small businesses with overwhelming demand for low-cost services. 

And as the IPO approached, the company struggled to show its strength of competitors in the market, including BuyWithMe, LivingSocial, Plum District, Home Run, and dozens of social and search-engine created deal services.

When the company finally disclosed that it only brought in $688 million for the first half of 2011, almost half of the $1.5 billion it claimed previously, investors balked at the company and questioned if it could compete at the $20 stock price it was opening with.

Groupon saw the initial 30% jump on the stock's first day of trading, but in following days dropped nearly 27%.

While the shares are still fairly new on the scene, the company is struggling to stay close to the opening price and show stability in the market.

Ticker: ANGI
IPO debut: November 17.
IPO price: $13.
Now trading at: $16.01.
Revenue over the last year: $31 million.

The company rating site, Angie's List, is the oldest tech company that made its IPO this year and that was despite its disclosure of net losses of more than $50 million this year.

The 16 year-old company, made its debut before the holiday scramble and was priced at $13 a share, but has not shown any substantial growth in the public markets.

On the first day of trading, the rating site was up nearly 40% from the original $13 price tag and dipped as low as $15.02, before finally settling at $16.26.

The stock looks to close out the year 10-15% above its debut, as long as the markets don't turn on it in the last three weeks of trading.

Image Source -- Stock-markettoday.com