It was the stock market story of the summer: how would Facebook’s initial public offering fair?
Everybody was watching Zuckerberg and his social media powerhouse to see what would happen. When Facebook announced that IPO would be $38 a share, everybody – from personal finance bloggers to traders to Facebook members – chuckled… and held their collective breath. Was the eight-year-old company really ready for such a massive leap into the stock market? Did it have what it took to be a successful publicly-traded company?
It didn’t take us long to learn the answer – a resounding “No.”
But while everyone was watching Facebook, another web-based business that had also broken new ground – basically defining its industry – had also started to tank.
So why didn’t anybody notice Groupon was floundering until now?
A Tale of Two Stocks
Facebook made its IPO on May 18, 2012. By the end of the day, the stock was already trading below the $38 mark; it has yet to top that amount in any trading day since.
Only six and a half months earlier, Groupon made its IPO. At the time, the $700 million valuation – 35 million shares at $20 each – was the biggest IPO for a web-based business since Google’s $1.7 billion IPO in 2004. By the time Facebook entered the market in mid-May, Groupon’s stock was already trading well below its IPO mark; on May 18th, Groupon (GRPN) closed at 11.58 – a scant 58% of its debut price.
Since then, both stocks have shared a similar trajectory. By Labor Day, Facebook (FB) was trading below $18 a share; Groupon was flirting with the $4 mark. Yet, as everyone from Mark Cuban to Forbes Magazine has blasted Mark Zuckerberg for the Facebook debacle, leading many to speculate over how long the Harvard dropout can maintain his place as Facebook CEO, by comparison there have been few news reports of investors calling for Groupon CEO Andrew Mason’s head on a proverbial golden platter.
So What Happened?
Here we have two tech stocks, both offering their IPOs on NASDAQ within just over six months of one another. Both have tanked to just a fraction of that initial value – so what’s going on? What happened?
The folks at Facebook claim it was simply an overvaluation; they also blame the site’s inability to grasp the mobile market when it comes to advertisers. Groupon says it didn’t expand aggressively enough internationally, and – quote – “stupid risks.”
Is there a larger lesson to be learned here, though? About businesses going public too early, or about determining a company’s worth based on intangibles? How can you value a company when it doesn’t really sell a product, or only works as a middle man between providers and consumers?
Readers, what do you make of these stock quotes and their downward trajectories? Are they two of a kind – or two completely different situations?
It’s so easy to copy Groupon that their insane value was never sustainable. When they first came out they were cool and unique. Now you can find ten other sites with good deals in most areas.
Facebook was just overvalued from the beginning. When they announced increases the price and the float on the day before trading started, I knew they were doomed. They left nothing on the table for investors and now investors are making that point perfectly clear. Facebook could have been a great IPO and had a big rise…three years ago.
They had pretty outrageous P/E ratios out of the gate I believe. I’d take that as a sign.
There was a lot of coverage of Groupon. It’s not as well known as Facebook, because it doesn’t have a billion people in it, and didn’t have a $100+ billion market cap. You might as well throw in Zynga in the mix as well as that had the same big drop and is trading near its lows.
They all have the same thing in common, the numbers aren’t what Wall Street wanted and the growth is slowing. The odd thing to me is that revenue and earnings were off in Groupon’s case by something like 0.05% and it knocked some 40% off the stock. Also, Groupon said that they had a lot of Eurpoean exposure, so that was a concern. I look at that as an opportunity for growth when things get better in Europe.
I don’t know but i see Facebook has got to be the most pretentious thing. I am thinking it’ll be gone sooner, like 5 years or more? not a fan anyway.
Groupon has more successful competitors than Facebook. Groupon may have been the first big local deal website, but now many other companies with excellent offers have entered the scene. I completely agree with Money Beagle.
MoneyBeagle makes the best point I think. The barrier to entry is so low for many of these online based IPOs. Look out easy it is to copy a social network or social media website. It’s actually very easy and is being done more efficiently by private competitors.
For internet IPO stocks I would keep an eye on those who have an incredible advantage in the market already. I would point to the likes of Google or Amazon.
It’s truly a fools game to try to chase these things before they fall. The only people to make money in these are the private capital, venture capital and early employees. They can cash out when all of us fall for the trap. Zynga is a great example of a company with hardly anything to offer, in which the CEO has made quite clear he is cashing in.