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.

TUTORIAL: IPO Basics

Groupon
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.)

Facebook
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.)

Zynga
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

    Career Choice: Bulge Bracket Vs. Boutique Bank

    Bulge bracket banks offer higher salaries and prestige. But boutique banks are rapidly gaining market share and may offer better work/life balance and job security.
  2. Investing Basics

    If You Had Invested Right After Amazon's IPO

    Find out how much you would have made if you had invested $1,000 during Amazon's IPO, including how the power of the stock split affects investment growth.
  3. Personal Finance

    Careers: Equity Research Vs. Investment Banking

    Equity research is sometimes viewed as the unglamorous, lower-paid cousin to investment banking. In this article, we compare the two careers.
  4. Stock Analysis

    Morgan Stanley's Profitablity: Bank on It (MS)

    The economy offers few certainties, but Morgan Stanley's profitability might be one of them.
  5. Investing

    Jamie Dimon Biography

    Jamie Dimon must be the most fearless man on Wall Street.
  6. Investing

    7 Reasons You Will Make a Good Investment Banker

    Many seek at the door of investment banking, but few can enter. Possessing these seven traits will help you land a job and succeed in investment banking.
  7. Investing

    7 Reasons Investment Banking Is Not for You

    Even if you possess the education, experience and enthusiasm to land a coveted investment banking gig, here are seven reasons to find another career.
  8. Stock Analysis

    6 Things to Know About Soul Cycle Stock

    Learn about SoulCycle and how it has found success. Understand six aspects of the company everyone should know before considering an investment in SoulCycle.
  9. Stock Analysis

    5 Things to Know About Neiman Marcus Stock

    Learn about Nieman Marcus and how it has become successful. Understand five aspects potential investors should know about the company.
  10. Active Trading Fundamentals

    The Biggest Private Equity Firms in New York City

    Discover the top four largest private equity firms, including Goldman Sachs, headquartered in New York City, as ranked by total assets raised since 2010.
RELATED TERMS
  1. Lloyds Organizations

    An insurance syndicate that bases its organizational structure ...
  2. Volcker Rule

    The Volcker rule separates investment banking, private equity ...
  3. Dog And Pony Show

    A colloquial term that generally refers to a presentation or ...
  4. Investment Bank - IB

    A financial intermediary that performs a variety of services. ...
  5. Red Herring

    A preliminary prospectus filed by a company with the Securities ...
  6. Glass-Steagall Act

    An act the U.S. Congress passed in 1933 as the Banking Act, which ...
RELATED FAQS
  1. 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 >>
  2. 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 >>
  3. 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 >>
  4. 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 >>
  5. 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 >>
  6. What are the advantages and disadvantages of listing on the Nasdaq versus other stock ...

    The primary advantages for a company of listing on the Nasdaq exchange are lower listing fees and lower minimum requirements ... Read Full Answer >>

You May Also Like

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!