LinkedIn (LNKD) may have been the first social media company to go public, but it's sure not going to be the last.
Using LinkedIn as the benchmark for the social media IPO fervor, it is safe to say the only thing holding back copycats nowadays is a lousy market environment.
"There have been 69 completed IPOs this year. That's up more than 30% from this time a year ago," says Stephanie Chang, a research analyst at Renaissance Capital, which tracks new offerings. "We're not quite back to 2007 levels yet, but we're definitely seeing improvement from '08 and '09."
In total, Chang says there's up to $37 billion dollars worth of deals in the pipeline of companies that have filed their paperwork, hired bankers and announced their plans to go public. While social media companies are generating the most buzz and seeing the strongest investor demand, Chang says a diverse range of businesses are in line to hit the market. They include tech, financial services, energy and foreign companies from China and Russia. "Fast-growing, small-cap growth stories are what investors are most excited about," she says.
Which brings us right back to social media and the billion dollar question: Who will be the next such company to list after LinkedIn? The truth is, we know the names in the sector -- Groupon, Zynga, Facebook, Twitter, to name a few big ones -- but no one knows when, or if ultimately, they'll list. Although Chang says she expects Facebook (which hasn't filed to go public, but speculation is rampant that it eventually will), to come to market in 2012, that's as narrow as the time frame gets.
So, when more social media companies do eventually go public, will the deals face the same criticism that LinkedIn did, after being priced at $45 and soaring to $122 in its debut? Chang is slower to pass judgment on bankers and says "it's very difficult to value these companies right out of the gate," likening it to an art rather than a science. LinkedIn sold less than 10% of the company by limiting the available shares, which Chang says was probably the single biggest driver of its opening rally. So before you go and say that it was underpriced, Chang points out that "over 30% of IPOs have priced below their ranges in the past year."
Call me crazy, but when the next two or three social media companies go public, they likely will be greeted with similar excitement. But whether there's as much value as there is excitement is the real question. For LinkedIn's public debut, unless you were among the chosen few who got shares in the IPO, volume analysis shows you probably paid at least $90 a share, (and that's being generous given that many people paid more than $120), which means you are currently down about 15%.
The point is, be careful what you wish for, and be mindful of what you pay for it.
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- Call me crazy