Some of the best known names in technology were able to conduct initial public offerings during 2011. These included technology companies like LinkedIn, Pandora, Groupon, Zillow, Demand Media and others. This will likely continue tomorrow as one of the most highly anticipated technology company offerings of the year (Zynga, a developer of online games for Facebook) is scheduled to price its IPO tonight.
The markets remained fairly receptive to these technology IPOs throughout 2011. This is impressive given the general poor state of the capital markets and the high degree of skepticism that greeted many transactions in other industries. Companies from many other industries found themselves either shut out of the capital markets or unable to easily access capital.
Many of these high profile technology companies have been able to maintain or show an increase from their IPO price. Based on recent information, LinkedIn, Groupon and Zillow are all trading well above their IPO prices. This is again impressive given the overall status of the capital markets. Not all technology companies have been successful in the public arena, however, as Pandora, Demand Media and others currently trade well below their IPO prices. The general feeling among investors seems to be that they are satisfied with most of these technology companies for now, but there is also an undercurrent of skepticism.
Of course, the most highly anticipated technology IPO (and one of the most highly anticipated IPOs in history) may occur in 2012 if Facebook elects to proceed with its offering. There is no way to tell if this will happen, but there have been an increasing number of signs that Facebook is going in this direction.
All of these public technology companies face some serious fundamental questions and issues, and the resolution of these questions and issues will determine the long-term success or failure of these technology companies as public entities. The questions surrounding these companies mainly relate to basic business issues such as the long-term viability of their business models and their ability to establish and maintain sustainable and profitable business operations over time. Even though investors supported these companies in their IPOs and have largely continued to do so, there is a growing level of scrutiny regarding these companies and their long-term viability. Only time will tell if these companies are able to succeed on an ongoing basis, but it is clear that the investment community is beginning to focus on the ability of these companies to generate profits for their investors.
One of the main criticisms that is being leveled at these companies relates to their basic business and revenue models. Many of these companies generate huge amounts of interest and visibility among consumers, but some of them have been unable to translate this interest into sustainable revenue streams. LinkedIn is an example of how a technology company has been able to successfully build revenue models. This company has been able to develop multiple revenue streams based on such things as premium content payments and advertising. It has also developed a sustainable revenue stream in the recruiting area as recruiters have found LinkedIn to be a helpful source of recruiting data and leads. LinkedIn’s management has shown creativity and foresight in the development of these revenue streams, and the markets have rewarded this by keeping the stock price well above the IPO price.
On the more negative side of investor perception, Groupon is beginning to experience growing criticism of its business model and its long-term prospects. The Groupon IPO itself has been criticized since the company’s founders sold substantial amounts of stock in the IPO. This has caused some commentators to question whether the founders have confidence in the company’s long-term viability. Groupon’s business and revenue models have also begun to be criticized as there appears to be mounting dissatisfaction with Groupon’s ability to generate positive results for its customers. Some commentators have said that this dissatisfaction will jeopardize Groupon’s ability to gain substantial levels of repeat business from customers. These negative comments and perceptions seem to have intensified recently. In fact, one of its underwriters commenced research coverage yesterday with an “equal weight” rating.
Technology IPOs should remain viable during 2012 because of the excitement they generate and their potential ability to generate large amounts of cash. The technology IPO and public company sectors should also get a huge positive boost if Facebook decides to conduct its IPO during 2012. It is clear, however, that investors have serious fundamental concerns about these technology companies. It is likely that current public technology companies and those who become public will face increasing levels of scrutiny regarding their business models and their ability to conduct profitable business operations on a long-term basis. Technology company CEO’s need to develop and intensify a focus on these basic business concepts to prevent this scrutiny from generating negative perceptions among investors.
For more information, view Bob White’s contact information here.