Groupon Vs. LinkedIn: The IPO Bad Boy Smackdown
Are LinkedIn (LNKD) and Groupon evidence of a tech bubble? Someone like entrepreneur and investor Marc Andreessen says no because too many people say there's a bubble and "a key characteristic of a bubble is that everybody is convinced that it's not a bubble."
Unlike Andreessen, I remember a few people who were convinced in 1999 that the market was, to use the technical term, nuts. And if the LinkedIn IPO isn't a clear warning sign, then the Groupon S-1 filing, which reveals a loss last quarter that ran 42 percent of net revenue, must be.
But that raises a question: Just who should be the poster child for the new wave of bad tech IPOs? Let's take a look.
Our users never call or write any more
LinkedIn has some definite points in its favor. For example, most of its users don't use the site even on a monthly basis. Could be the weather is turning nice and they all have something better to do.
The company actually made a profit last year, unlike previous years when, as a private company, it claimed to be profitable when it wasn't. A lie? Oh, how harsh. Maybe the CEO simply wasn't keeping close tabs on the topic.
As Jim Kramer points out, LinkedIn, along with the investment bankers, venture capital investors, and market makers, released only a small portion of outstanding shares to drive up early prices. The market went mad, clamoring for the scarce commodity of IPO shares and those inside players get premium prices.
That helped the stock, priced at $45, eventually hit $122.70 a share. Today, just a couple of weeks after the IPO, the price has slid back to $77.68 -- already down more than a third from the high, as this graph from Google Finance shows (click to enlarge):
Ironically, some said that the offering was underpriced because there was such an immediate sharp jump in share value, which LinkedIn itself didn't get to benefit from. Just shows you how dangerous bad boy love can be.
So special, they make up their own accounting terminology
But don't cast your vote yet. Groupon's IPO filing yesterday showed just how daring a company can be. Last year, insiders leaked to the press how the company was making money almost faster than it could count, claiming $1 million or more a week in profit. Real profit.
OK, maybe not so real profit. Groupon actually lost $420 million on $713 million total revenue in 2010. That's about $8.1 million a week. But what's a swing of $9.1 million every seven days among friends?
Of course, it depends on how you define profit. Groupon has developed a non-GAAP measurement, as my BNET colleague Jim Edwards noticed, which it calls "Adjusted CSOI":
This metric is our consolidated segment operating income before our new subscriber acquisition costs and certain non-cash charges; we think of it as our operating profitability before marketing costs incurred for long-term growth.In other words, even though marketing expenses ran 94 percent of Groupon's net revenue last year, just ignore it because, after all, it's just money spent to grow the business. And, clearly, management will eventually give up on growth and settle for a steady state to achieve real profitability.
That makes Demand Media's (DMND) "Adjusted OIBDA" look downright conservative.
A dark horse candidate
To be fair, let's give equal time to Yandex (YNDX), the Russian search engine company that debuted last week. Forget about the whys and wherefores of how it got to the gate, and focus on this: Yandex trades at 93 times net income and 26 times expected 2012 earnings, compared to the 20X and 13X multiples that Google sees.
Yandex has irony working in its favor, as the company is registered in the Netherlands, which is technically below sea level. That means Yandex was underwater from the start. At this point, though, I've still got to go with LinkedIn, whose P/E ratio -- better sit down -- is currently 2130.6 Then again, maybe Groupon will blow that number out of the water.
But if you don't like the choice of IPO Bad Boy, just wait. There are undoubtedly many more coming down the pike.
Related:
- Groupon Loses So Much Money, It Needs Its Own Daily Deals
- Groupon IPO: Its "Income" Is Dependent on Dodgy Accounting
- LinkedIn IPO Inflates the Tech Bubble
- LinkedIn Confesses That Most of Its "Users" Don't Use the Site
- 5 Solid Reasons LinkedIn Stock Is Headed for a Crash
- Hey, LinkedIn: Where Did Those Profitable Years Go?