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. Professionals

    The Best Financial Modeling Courses for Investment Bankers

    Obtain information, both general and comparative, about the best available financial modeling courses for individuals pursuing a career in investment banking.
  2. Chart Advisor

    Now Could Be The Time To Buy IPOs

    There has been lots of hype around the IPO market lately. We'll take a look at whether now is the time to buy.
  3. Stock Analysis

    GoPro's Stock: Can it Fall Much Further? (GPRO)

    As a company that primarily sells discretionary products, GoPro and its potential falls right in line with consumer trends. Is that good or bad?
  4. Stock Analysis

    Match.com IPO: Is it a 'Buy' or Should You Pass?

    Demand for relationships is always high. Now you will have a way to directly invest in the relationship market. But is it priced fairly?
  5. Fundamental Analysis

    Investment Banks: Not a Good Bet Right Now?

    Investment banks might appear safe to investors at the moment, but they're probably more dangerous than advertised.
  6. Professionals

    Common Interview Questions for Investment Bankers

    Explore some of the most commonly asked questions in an interview for an investment banking position, along with suggestions for winning answers.
  7. Markets

    4 Companies That Made Billionaires Poor

    Learn how four once-successful companies in the stock market lost their way, and how these companies turned billionaire investors poor.
  8. Stock Analysis

    Toys 'R' Us Stock Doesn’t Exist: Here is Why

    Learn why investors cannot trade stock in toy retailer Toys 'R' Us. This privately traded company could be a hot IPO candidate for the future.
  9. Investing

    Deutsche Bank Undergoes a Significant Revamp

    The Deutsche Bank's reorganization is being called one of the biggest shake-ups at an investment bank in recent years.
  10. Stock Analysis

    Goldman Sachs Vs. Morgan Stanley: Comparing Business Models

    Take a closer look into the most noted rivalry on Wall Street between Morgan Stanley and Goldman Sachs, the last two standalone investment banks.
  1. When did Facebook go public?

    Facebook, Inc. (NASDAQ: FB) went public with its initial public offering (IPO) on May 18, 2012. With a peak market capitalization ... Read Full Answer >>
  2. 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 >>
  3. 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 >>
  4. 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 >>
  5. 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 >>
  6. 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 >>

You May Also Like

Hot Definitions
  1. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  2. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  3. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  4. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
  5. Black Monday

    October 19, 1987, when the Dow Jones Industrial Average (DJIA) lost almost 22% in a single day. That event marked the beginning ...
  6. Monetary Policy

    Monetary policy is the actions of a central bank, currency board or other regulatory committee that determine the size and ...
Trading Center