Will Facebook's IPO add to the E-commerce IPO Saturation?
Edgar is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Is it me or the market is being saturated with e-commerce IPOs that have irrational valuations? If you haven’t been active in the market for the past six months, following e-commerce IPOs have made their entrance into Wall Street: Angie’s List (NASDAQ: ANGI), Groupon Inc. (NASDAQ: GRPN), LinkedIn Corp. (NYSE: LNKD), Zynga (NASDAQ: ZNGA) and now Yelp (NYSE: YELP). These social sites connecting consumers and businesses with reviews, providing online games or business networking, pride themselves with incredible valuations out of this world. As Yelp executives were high fiving each other at the opening bell, I was sitting in front of my laptop with a dull countenance, wondering if I should go back to business school. Next thought that came into my mind was “I wonder how long it will take before they lift the IPO short-selling restriction on this one.” I am not trying to sound cynical, but the company doesn’t even have a P/E ratio!
With last year’s $83.3 million in revenue, Yelp posted a loss of $16.7 million, which dwarfed the $9.6 million loss the year before. CNBC reported that company’s current $1.43 billion market cap is way above its $900 million valuation, which is also 17 times its 2011 revenue. The key word is “revenue,” not earnings! I am sure you caught that.
So to put this IPO craze into perspective, I decided to compare the aforementioned companies' stock performances for the past three months and see who the real winners are. I omitted Yelp as its stock price is only a day old and would not measure accurately. As the chart below shows, Zynga and LinkedIn are in the lead with three-month performances of 54.63% and 32.89%, respectively.
While LinkedIn’s valuations are quite justifiable, as the company boasts a solid balance sheet with low debt levels and a five-year 222% EPS growth, Zynga’s is a bit questionable. Despite mediocre fundamentals, most of the stock’s upside came from its proximity to Facebook and its recent online gaming platform launch that gave the stock a boost. Investors apparently were not that thrilled about Groupon and Angie's List over time. I believe Yelp will eventually fall into the same umbrella as the latter.
As Facebook is getting ready to debut its IPO with an amazing $100 billion irrational exuberance, it begs the question if the institutional buyers’ expectation in the company is misconstrued. Facebook’s theoretic $100 billion valuation versus its actual $6 billion revenue and $1 billion profit for last year is something to keep in mind before dumping your life savings into the upcoming IPO.
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