Facebook IPO Excitement Heats Even as LinkedIn and Groupon Cool

 
Groupon has cooled off, following its hot initial public offering, but investors are still hot for Internet offerings. Zynga, the online games company, is due to sell stock later this month at a lofty valuation, and Facebook is moving toward a monster IPO that could value it at $100 billion.
Barron's has been skeptical on two of the largest Internet IPOs this year, Groupon (ticker: GRPN) and LinkedIn (LNKD), the Internet professional networking company—as well as the entire sector ("Groupon Gropes for Growth," Oct. 31, "Yes, It's a Bubble," July 25, and "Is LinkedIn Already Tapped Out?" May 23).
Groupon and LinkedIn still look pricey. Groupon debuted at $20 a share in early November and surged to $26 on its first day of trading. The stock hit a low last week below $15 before ending Friday at $19. At that level, the company is valued at $12 billion, or a stiff eight times projected 2011 revenues of $1.6 billion. Traditional profit measures aren't helpful because Groupon operated around breakeven in the third quarter, although bulls say it will become profitable in 2012 and ultimately mint money as local merchants around the world use Groupons (discounted merchandise and service coupons) to entice new customers.

Groupon is the leader in the "daily deals" sector, but its business model is unproven, and its growth is slowing amid strong competition that is cutting into its margins. Too, consumers who are bombarded daily with coupon offers from Groupon and its rivals could be coming down with "deal fatigue." The number of Groupons sold in the third quarter was little changed from the second quarter at 33 million, while the company's "take rate" of deal revenues slid to 37% from 42% a year ago.
There isn't a lot of visibility about Groupon's international business, where much of its growth is occurring. If Groupon's growth continues to moderate and the profits fail to materialize, the stock could drop under $10.
LinkedIn went public at $45 in May and quickly jumped as high as $122. It now trades at $68, or 240 times projected 2011 profits, 127 times 2012 estimates.
Zynga, the developer of such popular online games as CityVille, FarmVille and Words with Friends, at least is profitable. It filed Friday to sell 100 million shares in a price range of $8.50 to $10 a share, which, at the high end of the range, would value the company at $7 billion.
Zygna's revenue growth, mainly from Facebook users who pay for virtual goods to enhance the game experience, has been impressive, doubling to $828 million in the first nine months from $401 million in the same period a last year. Operating profits grew to $82 million from $55 million. With a $7 billion market value, Zynga would be valued at more than 60 times potential 2011 pretax profits—and a higher multiple of after-tax earnings.
The Wall Street Journal, meanwhile, reported last week that Facebook is eyeing a 2012 IPO of as much as $10 billion that would value the company at $100 billion. That's well above its $72 billion value Friday in the private market for its shares at SharesPost. Facebook is believed to be on track to bring in $4 billion revenue this year and is solidly profitable. The key questions are its future growth rate and the appropriate equity valuation.
A $100 billion valuation for Facebook looks rich when you consider that investors can buy the still-expanding Internet leader, Google (GOOG), for a much lower multiple of revenues and profits. At $620 a share, Google is valued at $205 billion, or nine times estimated 2011 net revenues of $29 billion and 17 times estimated 2011 profits of $36 a share. The effective P/E drops to closer to 14 when you strip out Google's $42 billion in cash.
At a generous 10 times next year's potential revenue of $6 billion, Facebook would be worth $60 billion. Google trades at a more-reasonable six times next year's estimated revenue. 

Google, Facebook, Zynga oppose new SOPA copyright bill

Foes of a controversial copyright measure have gained some high-profile allies: Google, Facebook, Twitter, Zynga, and other Web companies have joined the ranks of the bill's opponents.
They sent a letter (PDF) last night to key members of the U.S. Senate and House of Representatives, saying the Stop Online Piracy Act, or SOPA, "pose[s] a serious risk to our industry's continued track record of innovation and job creation, as well as to our nation's cybersecurity."
The protest was designed to raise objections in advance of a hearing before the full House Judiciary committee tomorrow at 10 a.m. ET (7 a.m. PT). The letter, also signed by eBay, Mozilla, Yahoo, AOL, and LinkedIn, asks politicians to "consider more targeted ways to combat foreign 'rogue' Web sites."
SOPA, which was introduced last month in the House to the applause of lobbyists for Hollywood and other large content holders, is designed to make allegedly copyright-infringing Web sites, sometimes called "rogue" Web sites, virtually disappear from the Internet.
An announcement of tomorrow's hearing leaves little doubt about where House Judiciary Chairman Lamar Smith, a Texas Republican, stands. It says SOPA reflects a bipartisan "commitment toward ensuring that law enforcement and job creators have the necessary tools to protect American intellectual property from counterfeiting and piracy."
Not only is Smith SOPA's primary House sponsor, but opponents are outgunned in both congressional chambers. SOPA's backers include the Republican or Democratic heads of all the relevant House and Senate committees, and groups as varied as the Teamsters and the AFL-CIO have embraced it on the theory that it will protect and create U.S. jobs.
Smith pointedly declined to invite any civil-liberties groups that have criticized SOPA, such as the Electronic Frontier Foundation, to testify before his committee tomorrow. The Motion Picture Association of America did get an invitation, however, as did the AFL-CIO and Pfizer.
Google will be the only dissenting voice, a tactic that may allow SOPA's supporters to characterize corporate opposition as limited, especially because the Mountain View, Calif., company has been enmeshed in so many copyright battles of its own. The Web companies' letter will let Katherine Oyama, Google's policy counsel, demonstrate that opposition is broader than one firm.
In addition, opponents were scheduled to hold a press briefing this morning inside the Capitol Visitors Center complex. They had invited Rep. Zoe Lofgren (D-Calif.) and Darrell Issa (R-Calif.) to speak.
SOPA is so controversial--EFF calls it "disastrous"--because it would force changes to the Domain Name System and effectively create a blacklist of Internet domains suspected of intellectual-property violations.
A Senate version of the bill called the Protect IP Act, which a committee approved in May, was broadly supported by film and music industry companies. But Google Chairman Eric Schmidt was sharply critical, as were prominent venture capitalists, civil-liberties groups, and trade associations representing Web companies.
Even pop star Justin Bieber has weighed in.
In a recent radio interview designed to promote his Christmas album, Bieber said, referring to Sen. Amy Klobuchar (D-Minn.), who sponsored the Senate version: "Whomever she is, she needs to know that I'm saying she needs to be locked up, put away in cuffs... I just think that's ridiculous."
Update, 10:30 a.m. PT: Members of Congress opposed to SOPA have circulated their own letter (PDF), which was signed by Zoe Lofgren and Anna Eshoo, both California Democrats, and Ron Paul, the Republican presidential candidate from Texas, among others. They say SOPA will invite "an explosion of innovation-killing lawsuits and litigation." Lofgren (see CNET's previous report) has been critical of MPAA-backed copyright bills before.
Update, 1:40 p.m. PT: The we-hate-SOPA letters keep flooding in. A few dozen civil-liberties and left-leaning advocacy groups from around the globe now are circulating their own letter (PDF), which says that "through SOPA, the United States is attempting to dominate a shared global resource." Signers include Bits of Freedom in the Netherlands, the Electronic Frontier Finland, Reporters Without Borders, and, in the United States, Free Press and Computer Professionals for Social Responsibility. Notably absent are the two biggest such advocacy groups: Human Rights Watch and Amnesty International.
And another! This letter (PDF) is from a slew of law professors, including Stanford's Mark Lemley, Elon's David Levine, Temple's David Post, and UCLA's Eugene Volokh. They seem even more generous in their criticism than the other letters, warning that SOPA "has grave constitutional infirmities, potentially dangerous consequences for the stability and security of the Internet's addressing system, and will undermine United States foreign policy and strong support of free expression on the Internet around the world