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The Social Media Bubble Starts to Burst

Facebook

Score one for the Luddites: Social media really does seem to be overblown, at least as a business proposition.

The Facebook initial public offering earlier this year was supposed to mark the launch point for a new social-media infrastructure that would soon dominate our lives the way Google, Microsoft and Apple do now. Instead, Facebook and its brethren seem to be in retreat, as the market punishes them for underperforming.

In its first earnings announcement since going public, Facebook announced respectable growth in its user base and in year-over-year revenue, while meeting Wall Street’s modest expectations for earnings. But its profit margin declined from a year earlier, and it failed to deliver the kind of explosive growth many investors expected just a couple of months ago, The company’s rapidly slowing growth makes it highly unlikely to be the next lighter-than-air technology titan.

Facebook’s abrupt comedown makes it an easy target, yet several other social-media firms are also reeling. Here’s how thestock prices of some prominent tech firms have fared since going public over the last 14 months:

Facebook (IPO date, May 17, 2012). Stock down 26 percent.

Zynga (December 15, 2011). Down 69 percent.

Groupon (November 3, 2011). Down 66 percent.

Pandora (June 14, 2011). Down 43 percent.

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Groupon Falls As Lockup Ends, Allowing Insider Sales

Groupon Inc. (GRPN), the largest daily coupon website, declined the most in a month as a lockup period expired, permitting insiders to sell shares.

Groupon dropped 8.9 percent to $9.69 at the close in New York. It touched as low as $9.53, the biggest intraday decline since April 30.

Groupon Falls as Lock-Up Expiration Enables Sales

Groupon Inc. signage is displayed outside of company headquarters in Chicago. Photographer: Tim Boyle/Bloomberg

The coupon site is attempting to rebuild investor confidence after shares fell by half since the November initial public offering, among the worst market debuts for a Web company since the dot-com crash. Groupon’s stock has been battered by earnings restatements and the departure of Starbucks Corp. Chief Executive Officer Howard Schultz from the board, said Jeffrey Houston, an analyst at Barrington Research Associates in Chicago.

“All the negative headlines, the market overhang, it’s just kind of coming to fruition,” Houston said in an interview.

Groupon generates revenue by selling discounts — known as Groupons — from businesses such as restaurants and nail salons. It shares coupon proceeds with merchants.

The company in March reported a “material weakness” in its financial controls and said fourth-quarter results were worse than previously stated because of higher refunds to merchants. That followed a restatement of 2010 results in September because Groupon had counted the total amount of its daily-deal sales as revenue, including fees paid to merchants.

Groupon appointed Daniel Henry, finance chief of American Express Co., to its board on April 26 to replace Schultz, who stepped down.  Read More

So Why Is LinkedIn An IPO Standout?

Screen Shot 2012-05-30 at 1.57.16 PM

Earlier this morning at D10 KPCB analyst Mary Meeker showed a pretty definitive slide about the current state of the public markets with regards to tech companies. “The private market is in a bubble,” Meeker said, “We have a $1 billion fund, and didn’t invest once in Q1 because the valuation’s too crazy.”

The problem with these valuations is that public market investors are more skeptical, Meeker asserted bringing up the above slide comparing the IPOs of Facebook, Zynga, Groupon, Pandora and LinkedIn. Because of this skepticism their valuations are suppressed, almost all were trading at 20% lower than their initial IPO pricing, all except LinkedIn that is. The public market has taken kindly to the career focused social network, which is currently trading at $100 a share, 137% above its strike price of $32.

Kara Swisher had the opportunity to ask LinkedIn founder Reid Hoffman and CEO Jeff Weiner why they thought the company was doing so well later today, dubbing it the “Little LinkedIn That Could”. Their answer?

Hoffman said part of the company’s success was only focusing on the long-term, “I only look at the stock price once a month, it’s doesn’t really affect what are we building towards. Weiner said that companies were often to focused on IPO events with companies being criticized for talking too much or too little, etc.  Read More

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