Trading in Cyberspace

It would seem that 2012 will be a huge year for internet companies, with Facebook and Yelp plotting to lead the biggest year for web-based U.S. initial public offerings (IPOs) since 1999. This will test the demand amongst traders for internet IPOs, after many of them took a big hit with Pandora P and Zynga ZNGA. According to San Francisco Gate, “With Facebook considering the largest Internet IPO on record and regulatory filings showing that at least 14 other Web-related companies are planning sales, the industry may raise $11 billion next year, according to data compiled by Bloomberg. That would be the most since $18.5 billion of IPOs in 1999, just before the dot-com bubble burst.” Let's be fair from the very beginning – Facebook is not Pandora and it certainly is not Zynga. We are talking about an enormous company with a proven track record, a savvy management team and a sound business model. A bet on Facebook is not the same risk as a bet on the company that created Farmville. Having said that, there are always risks and there will always be someone looking to take Facebook's crown. Remember, at one point Myspace was the king of social networking. Before that, it was Friends Reunited. However, Facebook looks pretty safe for now. David Erickson of Barclays told SFGate that, “Technology is still a place where you can get outperformance in terms of growth against a tepid market backdrop. You might see more IPOs emerge if we get resolution in Europe or stability that makes investors more comfortable with the overall market.” 2011 saw IPOs drop, raising $155.8 billion, compared with $252 billion in 2010. According to the article, “Zynga, which raised $1 billion in its IPO this month, has since fallen 2.5 percent after going public at a valuation three times that of rival Electronic Arts Inc., Oakland, California- based Pandora has plunged 36 percent since its June 14 IPO.” Further, “Facebook, based in Menlo Park, California, is examining a $10 billion offering that would value it at more than $100 billion, a person with knowledge of the matter said last month. Total sales at Facebook in 2012 may surge 52 percent to 62 percent from this year's projected $4.27 billion through increased ad revenue, according to Debra Aho Williamson, an analyst at EMarketer. Industry wide, the display ad market may surge 24 percent to $12.3 billion this year.” In November, both Yelp and email marketer ExactTarget field for IPOs, hoping to add to the 19 internet companies that generated $6.6 billion in U.S. initial share sales this year. According to Bloomberg, “Glam Media Inc., a Web-advertising company that targets women, plans to make its first IPO filing by the end of the second quarter, people familiar with the matter said on Dec. 14. AppNexus Inc., the online-ad company backed by Microsoft Corp., may go public in late 2012, Chief Executive Officer Brian O'Kelley said in September. Companies like MobiTV Inc. and Eloqua Ltd., which rely on the Internet to distribute cloud- based software products to clients, may seek an additional $650 million, regulatory filings show.”