LinkedIn may not be the only social networking website that plans to go public this year - other companies are likely to tap the market before Facebook sucks up a significant amount of investor cash. Microblogging site Twitter, online coupon site Groupon and similar privately held websites may try to sell shares to public investors this year, analysts said. Zynga, which develops social online games, is another candidate for an IPO.
Facebook IPO delay opens window for other Web IPOs A company that goes public now will be able to take advantage of intense investor interest in the sector, without competing against Facebook for dollars and attention. "You don't have other companies in the market to benchmark against. You can trade at multiples that are far off from the reality," said Josef Schuster, founder of IPOX Schuster, a Chicago-based IPO investment firm.
"Someone is going to take this opportunity," he said. "If it's not Facebook, it's going to be LinkedIn, Twitter or someone else," Schuster said. LinkedIn plans to go public in 2011, sources have told Reuters, in part because it wants to beat out Facebook. "If Facebook went public before LinkedIn, do you think anyone would pay that much attention to LinkedIn? You might want to surpass the beast," one source told Reuters on Wednesday.
Facebook this week raised $450 million from Goldman Sachs and $50 million from Russian investment firm Digital Sky Technologies in its latest private funding round. The deal is seen as delaying Facebook's IPO for some time, possibly until 2012. Valuations for these websites are soaring, because the latest crop of Internet companies have not only woven themselves into the fabric of popular culture, they also aim to transform the way business is conducted on the Internet.
The latest private financing deals valued Twitter, which began its first serious efforts to make money less than a year ago, at $3.7 billion. Three-year-old Groupon is valued at $6.4 billion to $7.8 billion, while Facebook's valuation reached $50 billion based on this week's funding deal.
Facebook's market value puts it on par with such heavyweights as aircraft maker Boeing and retailer Target Corp, and far past Yahoo with a market cap of $22 billion. Just three years ago, after an investment by Microsoft Corp investment, the social network was valued at $15 billion.
"It certainly appears that social networking firms could be well-rewarded for going public," said Morningstar IPO analyst Michael Gaiden, who called current valuations "meaty." Part of the pressure on these companies to go public will likely come from private investors eager to cash out, analysts said. Groupon has raised $500 million in private financing and Twitter received $200 million in venture financing. Digital Sky Technologies also bought a sizeable stake in Zynga.
"When people make those investments, they don't expect the companies to remain private forever," said Francis Gaskins, president of IPOdesktop.com. "There is a push to go public." Waiting too long carries other risk for these companies, because they will not necessarily be able to grow at a frenzied pace forever, given the finite number of potential users, said Jack Ablin, who helps oversee $455 billion as chief investment officer at Chicago-based Harris Private Bank. "They won't grow to the sky," he said. "They're fully valued and optimism is peaking, and they'd be better served going public now.