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Where are they now? 3 Internet stars that fizzled

Some technology startups are like child stars: hot one day, not the next.

That seems clear in watchng the travails of three formerly high-flying Internet players -- Groupon (GRPN), Etsy (ETSY) and Zynga (ZNGA) -- whose recent financial results highlight how far each has fallen since ballyhooed initial public offerings.

Of the three, Groupon's (GRPN) decline has been the most dramatic. The online deal company's shares fell $1.06, or more than 26 percent, in Wednesday trading after posting a disappointing earnings forecast. Groupon reported that its loss widened in the most recent quarter to $27.6 million. Revenue was little changed at $713.6 million, lagging analyst forecasts of $732.8 million. The stock has plunged more than 85 percent since it started trading in 2011 at $20 per share.

Not surprisingly, Groupon's financial struggles have been accompanied by management shakeups. Co-founder Andrew Mason was fired in 2013 after his quirky behavior raised eyebrows among investors. Eric Lefkofsky, another co-founder, replaced Mason. Then company's board of directors voted earlier this week to name chief operating officer Rich Williams as CEO, with Lefkofsky now chairman of the Chicago-based company.

The company is trying to transform itself from a daily deals site into a marketplace where local merchants can sell goods and services. Wall Street had worried that Groupon would be crushed by (AMZN) in the deals business before the e-commerce giant shuttered its online coupons offering. Still, the Seattle retail giant continues to loom large over Groupon.

"Just because Amazon left the daily deals voucher business doesn't mean that Amazon isn't focused on local," said Tom White, an analyst with Macquarie Securities, who rates Groupon's stock as "outperform" because of its depressed valuation. "Local advertising is a large enough market and a potential needle-mover for companies like Amazon and Google and Facebook an Apple, all of which have businesses that are so big that it's only worth their while to go after the really big opportunities."

Like Groupon, Etsy has failed to live up to Wall Street's expectations. Shares in the online handicraft product marketplace are off 37.5 percent since its market debut earlier this year. The stock closed at $9.96, down about 10 percent, after on Tuesday reporting a loss of $6.9 million on disappointing revenue.

Amazon may pose an even bigger problem for Etsy. Amazon last month announced plans to launch a rival site called Amazon Homemade, which features 5,000 sellers from around the world offering 80,000 items. Etsy CEO Chad Dickerson insists that the company's relationship with its sellers is solid, saying in a conference call with analysts that "we have no reason to believe that any competitors are having an impact on our seller business right now."

Brean Capital analyst Tom Forte argues that Amazon may find it more difficult than it expects to crack the handicraft market, which is much different than its core e-commerce businesss.

"I actually feel like Etsy should be higher, not lower today," said Forte, who has a "buy" rating on the Brooklyn, New York-based company. "Their opportunity for growth is good and will get better."

Web game publisher Zynga went public the same year as Groupon at $20 a share. Since then, shares in the maker of "Farmville" and "Words With Friends" have slumped nearly 75 percent. Although Zynga's quarterly results today beat analyst forecasts, they weren't much to brag about. Revenue fell 3 percent to $170 million as the company earned $3.1 million, breaking even. Monthly active users, a closely watched metric of Internet companies, fell 27 percent on a year-over-year basis to about 75 million.

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