OMG! Investors Excited for Social Media IPOs!

Henry Truc  |

There's been a growing hype around tech stocks lately, or more accurately, potential tech stocks among investors. While some may refer to the social media boom as the sequel to the 2000 dot-com bubble, there's undeniable proof that investors are itching to get their hands on some of the hottest names on the Internet. Whether you're talking about Facebook, Twitter, Groupon or even something as small as an apps maker, investors are chomping at the bit for companies that have been only available to venture capitalists and Wall Street firms thus far.

Despite valuations in the billions of dollars for the likes of Twitter, Facebook and Groupon, these companies have held off on their public offerings. In fact, Twitter has been adamant that it doesn't plan to file for an initial public offering any time in the near future. Other companies like Facebook and Zynga--which makes social media games like the wildly popular Farmville--are subject to daily speculation from when investors can finally get in on the action. Just like consumers of technology, tech investors are always eagerly anticipating the next big thing. The short attention span of consumers and investors puts pressure on these companies to correctly time their IPO. Since they often go from startup to revolutionary industry giant in a few short years, the window to maximize their valuation and IPO pricing.

Most of the time, investors are willing to pay for the potential of what a company might do in the future. This is especially true in the world of social media companies, which boast large user bases but paltry revenue streams. Operating as a private company allows these social media darlings to continue to build hype and delay their evolution into a bottom-line driven business for another day. Once they go public, and the books open up, public and investor sentiment become a lot more demanding.

When most people think of social media, they think of social networks. But this sub-industry under the tech umbrella provides much more than that. There are services used by everyday consumers that include a social aspect in it. Arguably the biggest social media IPO news has been that of China-based Renren set to trade on the New York Stock Exchange in early May. Renren, with its 100 million-plus users, is being billed as the Facebook of China. The company is an interesting play since it taps into the blooming social media market as well as serves as a China investment. The company plans to raise around $550 million through their public offering, pricing shares between $9 to $11 per.

Another popular IPO candidate is real-estate web company Zillow. The company plans to raise $53.1 million, according to its recent S-1 filing. Zillow, which owns a large database of mortgage and housing data, provides consumers with an easy way to access information on housing prices and mortgage loan information on its website. Why is Zillow so popular? The company has displayed enormous growth, primarily over the past year. In 2010, revenue increased 74 percent to $30.5 million. In March 2011, traffic jumped 90 percent to 19.4 million unique visitors. With so much attention on real estate and housing performance, a data-heavy and user-friendly site like Zillow is perfectly positioned.

Facebook obviously dominates the social network realm, but LinkedIn is no slouch either. The company says it has over 100 million professionals making up its membership. And their users aren't limited to just the U.S. either. A little less than half of the professionals on LinkedIn are based in the U.S., while over 55 million are from the rest of the world. Unlike other companies in this space, LinkedIn knows how to monetize its product, bringing in revenue of $243 million in 2010, doubling what it had done in 2009. More importantly, the company announced last month that it is profitable, with net income for 2010 at $15.4 million, compared to a $4 million loss the prior year. The company's IPO could raise $200 million, valuing LinkedIn at a whopping $2 billion.

Video site Hulu was expected to do their IPO in 2010, but the company decided to focus on developing a pay wall strategy and curtailed its public offering for a later date. Other popular Internet services like Pandora and Skype have already filed for their IPOs earlier this year. Skype, which provides communications services over the Internet, expects to raise $5 billion to $6 billion with their public offering some time in the second half of 2011.

Pandora, the web-radio company, filed in February and expects to raise about $100 million despite not yet generating a profit. The company, however, reported a 30 percent increase in revenue to $90.1 million in 2010 and lowered net losses from $16.8 million to $300,000.

While Skype, Hulu and Pandora are highly anticipated IPOs in their own right, the main dish that investors are salivating for remain to be Facebook, Twitter and the overnight-success story Groupon. Facebook seems the closest, as seen by their deal with Goldman Sachs (NYSE: GS) that valued the social network at $50 billion.

Twitter seems the furthest, but it's valued around $7.7 billion, though investors and the media are starting to turn on the company as it grows frustrated at its inability to evolve into a viable business model. Localized daily deals company Groupon seems to be to be the closest to an IPO. The company is reportedly leaning towards Goldman Sachs and Morgan Stanley (NYSE: MS) to help them go public some time later this year. The IPO would value Groupon in the range of $15 billion to $20 billion.

Perhaps its the excitement of being a part of the next big thing, the potential for massive profits, or investors just buying into the hype of these digital darlings, but the fact that all these companies in this industry are experiencing similar meteoric rises does raise the question of whether or not this could be the next tech bubble.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not necessarily represent the views of Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to:

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