LinkedIn vs. Facebook IPO Success

LinkedIn vs. Facebook IPO Success

 

LinkedIn’s recent IPO performance appears to have crushed the perception of big named company IPOs from Facebook, Yelp, Zynga, Groupon and Pandora. Based on their recent closing price, LinkedIn is up 141%. According to BusinessInsider Linkedin is, “the best-performing IPO this year by a huge margin. The next closest competitor, Bankrate, is up about 28 percent from its initial public offering.”

Timing may have been a factor for LinkedIn’s success. They have also seen consistent growth in unique visitors. Investors waiting for highly anticipated IPOs like Facebook may have helped increase the success of LinkedIn as well.

Although Facebook has had a lot of negative press regarding its IPO, CBS news reported that Facebook’s IPO was actually a success. CBS explained, “LinkedIn (LNKD) shares popped from the start in the professional networking company’s 2011 IPO and more than doubled in the first few days.”  Investment bankers made a bundle. This led people to think Facebook had been a flop. However, CBS author Allan Roth explained, “my definition of a successful launch of a new publicly traded stock doesn’t rest on how much money the investment bankers make. It rests on how close the offering price is to where the stock actually trades. The fact that Facebook shares closed at nearly their offering price tells me that that investors thought it was fairly priced. That’s pretty amazing, in my view, given all the hype over Facebook.”

Colin Lokey from SeekingAlpha explained that when comparing Facebook to Linkedin, fundamentals show that Linkedin is overvalued. Lokey warned, “Investors should of course, keep in mind that the fact that LinkedIn is far too expensive doesn’t mean Facebook is fairly valued at half of LinkedIn’s price.”  Prices have been affected by the recent Facebook IPO. Yahoo’s Finance writer Jeff Macke did not share Lokey’s opinion on pricing when he stated, “Linkedin stock has been dragged down over the last few weeks by the undercurrent of the Facebook Titanic.” He sees LinkedIn as a “screaming buy”.

Only time will tell how well LinkedIn and Facebook will perform. BizJournals recently quoted Linkedin’s CFO Steve Sordello about the importance of a company’s IPO results. “”An IPO is a one-time event, and what really matters is the long term. If it rains on your wedding day, you’re going to remember it rained but it’s not going to influence the marriage.”

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Facebook Advertising Appeal

When a company like Facebook goes IPO, there is a lot of discussion about future potential for income.  One area where Facebook may increase revenue is through advertising.  Facebook took a big hit this week when GM killed a $10 million advertising campaign deal. GM claimed that Facebook ads were ineffective.  DailyFinance.com reported, “Click-through rates are much lower on Facebook than they are on the internet generally, or on Google (Facebook: 0.051%, Google: 0.4%, Average: 0.1%)”

One way for an ad to be effective is for it to reach the target audience.  Understanding a company’s target demographic is important.

According to Statista, “This statistic shows the age distribution of Facebook users in the United States as of April 2012. During that period of time, the majority of local Facebook users were between 18 and 24 years old. Furthermore, the most popular Facebook activities of U.S. users were posting on walls and checking the internal newsfeed.”

According to Facebook’s advertising Q&A area, there are some limitations regarding how advertisers may reach a specific demographic.  Other than age and birthday-specific advertising, Facebook targets based on location, interest, education and connection advertising.  This differs from Google that allows targeting by interest, keywords, remarketing, location and demographics.

BusinessInsider explained the difference between advertising on Facebook vs. Google in terms of reach and revenue.  “Total reach for Facebook is 51% of all internet users.  Total reach for Google is 90% of all internet users.  First quarter revenue for Facebook is $1.06 billion, down 6.5 percent year on year and down 32 percent sequentially.  First quarter revenue for Google is $2.09 billion, up 1 percent year on year and up 0.7 percent sequentially.”

Facebook is hoping to use friendships to sell products and brands.  Check out the following video to find out more about this and the importance of geofencing.  According to Amos Content Group, “A geofence is a virtual perimeter around a real area as in within a block of a restaurant. Marketers can use this location-based service to target a passersby who has opted in to send deals or information to smartphones.”  Facebook’s friendship-based approach could influence geofencing.

[youtube http://www.youtube.com/watch?v=eftH4dJkjZk&w=560&h=315]

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Things To Know Before Investing in an IPO

 

There is a lot of talk about IPOs lately.  IPO stands for initial public offering.  When a company decides to make shares of the company available to the public, it may sound like a great opportunity to get in on the ground floor.  However, it may not be easy or sometimes wise to buy into an IPO as soon as it is offered.

USA Today had an excellent article about Five Things You Should Know Before Investing in an IPO.  According to this article, some of these things include:

  1. Learn the Lingo – Do you know what a red herring is or an IPO offer price?
  2. It’s Difficult to Get In – It may not be impossible, but you may have to be a preferred client.
  3. First-Day Investing May Be Risky – If you like the thrill of rolling the dice, the first day can be a wild ride.
  4. Know the Sales Figures – Find out about the company’s annual sales performance.
  5. Know the Long-Term Outlook – “The Federal Reserve identified two characteristics of successful IPOs in a 2004 study: The companies have been around longer than other companies issuing stock for the first time, and they’re making a profit before they do so.

To learn more about each of these 5 areas, check out the article by clicking the link listed above.

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Top 10 Most Misunderstood Entrepreneurial Start-up Words

 

Some of the most interesting companies right now are considering going IPO?  If you are confused about what that means, you are not alone.  I find that a lot of my students would enjoy reading articles about new start-up companies but avoid them due to the writer’s use of confusing terminology.  Having taught entrepreneurship for many years, I have come up with a list of some of the most misunderstood words that have to deal with entrepreneurs and start-up companies to make things a little easier to understand.  Click on the links provided below for more information about the definition of the term:

  1. Angel Investors – Investors getting startup from self-funded stage to obtaining venture capital.
  2. Bridge Loan – a short-term way to obtain a loan that meets immediate needs for capital.
  3. IPO – Initial Public Offering – when a private company offers stock and becomes a public company.
  4. Limit Liability Company or LLC – legal form of a company providing limited liability.
  5. Me-Too Product – when competitors’ products are basically indistinguishable for yours.
  6. Portfolio – Holdings of a private investor or institution.
  7. Seed-Funded – investment to start a business until the business can fund itself.
  8. Start-up – Differing opinions on this . . . Check out the article:  How do you define a startup?
  9. Valuation – Company’s market worth.
  10. Venture Capital – Money or capital provided to start a business.  Those providing money may be referred to as Venture Capitalists.

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What to Know before Investing in IPOs like LinkedIn or Pandora

Is investing in an initial public offering (IPO) a good idea?  With the recent LinkedIn and Pandora IPOs and talk of future IPOs with Twitter and Facebook, this is a question that many investors may be considering.  Imagine getting in on the ground floor of a giant like Coca-Cola? It might have been a wild ride, but those that hung in there, had a nice payoff.  Joshua Kennon of About.com reported, “A single share of Coca-Cola purchased for $40 at the IPO in 1919, for example, crashed to $19 the following year. Yet, today, that one share, with dividends reinvested, is worth over $5 million.”

Kennon suggests that if you have the stomach for risking your investment, you might want to consider whether the company can grow at a rate high enough to justify its price, whether there are any patents or trademarks to protect the business, whether you’d want to hold onto this stock for 30 years and if it fell by 50% would you have the stomach to handle it?

DailyFinance reported some additional questions to ask before investing in an IPO: (1) Is there an attractive market for the product? (2) Does the company have a significant share of the market? (3) Is the company’s management team experienced? (4) Is the company growing and profitable?

The following list shows some more recent IPO original offering prices compared to their current price (as of July, 2011):

Google Initial Offering Price, 2004:  $85/share

Google Price July, 2011:  $530/share

Pandora Initial Offering Price, June, 2011:  $16/share

Pandora Price July, 2011:  $19/share

LinkedIn Initial Offering Price, May, 2011: $45/share

LinkedIn Price July, 2011:  $98/share

Many employees of companies like Google became wealthy overnight when their companies went IPO. The New York Times article Google’s IPO 5 Years Later stated, “When the offering finally happened, it turned an estimated 1,000 Google employees into millionaires, at least on paper. Since then, many more millionaires have been minted inside the Googleplex, the Web search company’s headquarters in Mountain View, Calif.”

Not all startups have been this successful.  Businesspundit lists the 25 Internet Startups that Bombed Miserably. MSMoney also warned, “Many investors fret they’ll miss the next big thing because they have no access to the IPO market, but study after study has proven that IPOs historically underperform the broader markets.” FIGuide echoed that same sentiment in their article Should You Invest in IPOs, stating that there might be better options.  “A seminal paper published in The Journal of Finance looked at IPOs from 1970 to 1990. During the five years after issuance, investors in these IPOs got average annual returns of only 5%.(1) By contrast, the overall stock market’s average annual return from 1970 to 1990 was more than double that figure, at 10.8%. To put this in perspective, $1,000 invested at 5% for 20 years would have generated $2,653, while $1,000 invested at 10.8% would have generated $7,777, almost three times as much.”

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