- August 29, 2012
- 2:40 pm
- no comments
Has the tech bubble burst again? Facebook, Groupon, Zynga shares plunge since IPO.
There’s been a lot of talk in the business press lately about whether the current “tech bubble” is bursting. A number of high-profile companies have gone public in the last year, and some of the most notable stocks have been in a free-fall ever since. Facebook shares are down 50% since their IPO in May; Zynga shares are down 68% since their IPO nine months ago; and Groupon shares are down a whopping 83% in the 10 months since they went public. That’s a tremendous amount of shareholder wealth that’s evaporated in a very short period of time.
Contrast the performance of the companies listed above with LinkedIn, which is up 16% since its IPO 15 months ago. LinkedIn has been around for a while, with steady growth and a seemingly sustainable business model that includes a variety of revenue streams. The ubiquity of LinkedIn, Facebook, and Groupon might seem more or less equal in our daily lives, thus leading some to believe that each business model is sustainable. Astute observers might suggest, however, that LinkedIn’s business model is harder to replicate, since the barriers to entry for another professional networking site (such as reaching LinkedIn’s critical mass of users) might be harder to overcome than, say, those for a daily deal site. For example, there are many daily deal sites that are taking market share away from Groupon (and, frankly, consumers are now accustomed to getting deals online through a variety of sites; Groupon’s revenue per user is down). But we haven’t seen a site that’s come close to replacing the importance of LinkedIn for most professionals. Of course, nothing is permanent and another technology or company may come along to disrupt the landscape for LinkedIn. If we look at the current stock performance, however, investors clearly have voted with their dollars.
Are the stock price declines for Facebook, Zynga and Groupon due to market conditions, or do these declines reflect serious flaws in these companies’ business models? Were the investment bankers, venture capitalists and founding owners too quick to cash out on overly valuated stocks after the initial social media IPO hype? Is this a result of a lack of leadership, or simply market forces at work? Did the leaders of these companies put short-term gains ahead of long-term shareholder value? Did everyone simply misread the market, or is it simply too early to tell?