A big wave of tech IPOs is hitting the market, spurred by high enthusiasm and even higher valuations. The hottest IPOs are for companies with a social media aspect, which is widely touted as the second internet. In particular, the three hottest upcoming IPOs are expected to be Groupon, Facebook and Zynga.


It's hard to believe, but the online coupon site is only a little over two years old. According to the Wall Street Journal's (WSJ) Deal Journal, Groupon went from a modest $30.47 million in sales for 2009, to nearly $645 million for just the first quarter of 2011. Given such amazing growth, it's no surprise that Groupon is probably the most anticipated IPO that we know for certain is coming. Unlike Facebook and Zynga, Groupon recently filed the required documents with the SEC.

Not everyone is excited by Groupon though. Groupon skeptics are eager to point out that the company's top line growth is partly deceiving. Groupon only keeps a portion of that number, reflected in its gross profit, which is only about 40% of its revenue.

But that isn't the worst thing. As incredible as Groupon has grown in income, it has also grown its expenses even faster. As the site continues to scale up massively, it has continued to lose huge amounts of money each quarter. Setting aside these issues, it seems that many people sense that there is strong potential in a company that can manage such a tremendous growth rate. Current valuation levels would put the company at about a $20 billion implied value - about the same as Yahoo!. (For related reading, see The Economics Of Group Buying Sites.)

While most commentators are pretty certain that Facebook will go public, there is still much speculation as to when it will happen. Though some had hoped for a 2011 debut, the company has yet to file papers with the SEC. When Facebook does go public, it's going to be huge. Some think the company is worth as much as $100 billion. That would put Facebook in the same league as Pepsi Co, Bank of America, and ConocoPhillips - big shoes to fill.

TUTORIAL: IPO Basics: Don't Just Jump In

Under SEC rules, companies must disclose their financial information once they have over 500 investors. The WSJ's Dealbook blog reports that many believe that the company will file for an IPO at that point since the company will be required to make many public filings anyway.

Prospective investors will be happy that Facebook turns a profit, though it seems unlikely it will trade at anything close to its fundamental value in the current market environment. More likely, if you want to get in, you'll have to pay some very high multiples based on the hope of rising earnings two or three years out. (For related reading, see Alternative Ways To Invest In Facebook.)

Farmville creator Zynga is expected to announce an IPO soon, but so far, those reports have turned out to be only rumors.

In January, the New York Times Dealbook reported that company insiders, including CEO Mark Pincus, have indicated that they are not particularly eager to sell their shares in the company. The company has thus far managed to raise sufficient funding from private sources, meaning that there is no financial necessity for an IPO.

As a private company, little is known about Zynga's finances. However, many commentators expect that Zynga is highly profitable. Valuations of the company outline a wide range, all the way from $5 billion in January, to up to $15 billion in June.

The Bottom Line
IPOs are exciting opportunities to buy in to previously unavailable companies. Just don't let your emotions get in the way of making sound investment decisions. (For more, see What Are Social Media Sites Really Worth?)

Related Articles
  1. Investing

    Top Investment Banks In The Energy Industry

    Many global Investment banks are highly involved in the energy industry, but there are also some smaller banks and boutiques that are strong players.
  2. Stock Analysis

    Is the Stock Market Crashing? 5 Signs to Consider

    Learn about some signs of a potential stock market crash including a high level of margin debt, lots of IPOs, M&A activity and technical factors.
  3. Investing News

    Ferrari’s IPO: Ready to Roll or Poor Timing?

    Will Ferrari's shares move fast off the line only to sputter later?
  4. Professionals

    Career Advice: Investment Banking Vs. Corporate Finance

    Read an in-depth review and comparison of a career in investment banking and a career in corporate finance, with advice about which one to choose.
  5. Investing

    Middle Market Investment Banks

    We take a close look at investment banks working with middle market companies.
  6. Fundamental Analysis

    Top Reasons IPO Valuations Miss The Mark

    The costly services of investment banks don’t necessarily guarantee accuracy in IPO pricing.
  7. Investing

    Top Investment Banks In The Real Estate Industry

    The real estate market relies on capital provided by large global investment banks.
  8. Insurance

    All About Impaired Risk Annuites and Insurance

    What are impaired risk insurance products and understanding life insurance rate classes, table ratings and flat extra premiums.
  9. Professionals

    Career Advice: Investment Banking Vs. Investment Management

    Review an in-depth comparison between investment banking and investment management, their respective career paths and which one you should choose.
  10. Professionals

    Career Advice: Investment Banking Vs. Wealth Management

    Take a comparative look at two of the most popular career choices in the financial sector, wealth management and investment banking.
  1. Can mutual funds invest in IPOs?

    Mutual funds can invest in initial public offerings (IPOS). However, most mutual funds have bylaws that prevent them from ... Read Full Answer >>
  2. How does investment banking differ from commercial banking?

    Investment banking and commercial banking are two primary segments of the banking industry. Investment banks facilitate the ... Read Full Answer >>
  3. What kind of assets can be traded on a secondary market?

    Virtually all types of financial assets and investing instruments are traded on secondary markets, including stocks, bonds, ... Read Full Answer >>
  4. Why would a company decide to utilize H-shares over A-shares in its IPO?

    A company would decide to utilize H shares over A shares in its initial public offering (IPO) if that company believes it ... Read Full Answer >>
  5. How do I place a buy limit order if I want to buy a stock during an initial public ...

    During an initial public offering, or IPO, a trader may place a buy limit order by choosing "Buy" and "Limit" in the order ... Read Full Answer >>
  6. How do corporate actions affect floating stock?

    Corporate actions, defined as a company's actions that affect the amount of outstanding company stock shares, can either ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Real Estate Investment Trust - REIT

    A REIT is a type of security that invests in real estate through property or mortgages and often trades on major exchanges ...
  2. Section 1231 Property

    A tax term relating to depreciable business property that has been held for over a year. Section 1231 property includes buildings, ...
  3. Term Deposit

    A deposit held at a financial institution that has a fixed term, and guarantees return of principal.
  4. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  5. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  6. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!