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And then the music stopped

37signals.com

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Re: And then the music stopped

#21

Post by PaulHoule »

I'd say Groupon and Zynga aren't in the same category is FB.

Zynga made it big on those "free" ringtones that would cost you $10 a month for the rest of your life. Groupon is a ponzi scheme.

Both Zynga and Groupon did quick IPOs because they had to get an exit before they fell apart. Many agents on Wall Street have aided and abetted this (underwriting banks, anyone who bought that stock for you or who encouraged you to buy it, etc.) It's stupid short-sighted thinking from the industry because it harms investor trust (in short supply today) and will hurt future IPOs.

Facebook is a real company that delightes customers. They only did an IPO because they couldn't keep up being a private company the way they were. (Blame regulation) The big weakness of Facebook is an ARPU that's south of $10 a year... It's believable they can get it up, but I' afraid being public means investors will force them to be tactical rather than strategic which could kill the goose that lays the golden eggs.

FB has some real problems, in particular a $10 /year ARPU

Re: And then the music stopped

#22

Post by RickHull »

ChuckMcM wrote: post #15

"So between just these three, some $40 billion has been extracted from pension funds and other last-sucker-in-line investors." This is incorrect, David takes the change in market cap and then equates that to losses in pension funds. But this does not represent the state of affairs because when companies go public they don't put all of their stock on the market, rather they put a small percentage of the company on the…

Not only that, but when you look at peak prices, you have to take into account the volume traded at that price. Theoretically, for stock X, you could have a single trade for 1 share at $100, while the pension funds bought in mostly at $45. If X trades at $35 now, $65 off its high, you can't conclude that pension funds have lost $65 per share across all of their shares.

Re: And then the music stopped

#23

Post by majani »

PaulHoule wrote: post #21

I'd say Groupon and Zynga aren't in the same category is FB. Zynga made it big on those "free" ringtones that would cost you $10 a month for the rest of your life. Groupon is a ponzi scheme. Both Zynga and Groupon did quick IPOs because they had to get an exit before they fell apart. Many agents on Wall Street have aided and abetted this (underwriting banks, anyone who bought that stock for you or who encouraged you…

I think you're confusing users with customers. In the ad business those are two completely different things. FB may be delightful for users, but it's pretty 'meh' for advertisers.

Re: And then the music stopped

#25

Post by unreal37 »

Plenty of people were warning about Groupon and Zynga being unsustainable businesses BEFORE they went IPO, and I have no sympathy for those that played that risky game. It's disingenuous to be outraged about those two stocks being below the IPO price when it was a common sentiment before they went IPO.

Facebook is actually a real business, making $1B/quarter in revenue. Maybe they should have went IPO at $8 and allowed all those high net-worth investors who could buy at the IPO price to double or triple their money. But why should they do that?

I'm beginning to think that the stock market is not a place for individual investors, with all the computer traders and momentum investors. But that's a different point entirely.

Re: And then the music stopped

#26

Post by juliendsv-mbm »

KaoruAoiShiho wrote: post #8

Each of these are different / unique cases. Perhaps only Facebook actually fits the 37 Signals narrative (that of a company overvalued because people were too optimistic about potential). Zynga and Groupon both had great revenues and from that perspective were deserving of their valuations. However Zynga is losing customers because they didn't innovate in their space and Groupon's financials were misleading in the fi…

Groupon was generating revenues, not profits. They also lied about their revenue declaring their gross billings as their revenue, but they should have declared their net revenue (the amount groupon keeps after paying the merchant) before going IPO ..

Re: And then the music stopped

#27

Post by crazygringo »

netcan wrote: post #20
crazygringo wrote: post #7

> some $40 billion has been extracted from pension funds and other last-sucker-in-line investors Correct me if I'm wrong, but that would only be true if everyone in all the companies had sold all their shares. I don't know what percentage of shares in Facebook, Zynga and Groupon became publicly availably post-IPO, but does Zuckerberg's continued stake in Facebook make him a "last-sucker-in-line" as well? I doubt it.

I don't think you'd really consider Zuckerberg an investor at all. Employees & founders in particular are really a different class. Anyway, you can't be last in line if you're first in. Most of the pre-IPO investors made profits. Most of those that have cashed in those profits, cashed out by selling their shares to post IPO investors.

Sure, I'm just saying the article seemed a little hyperbolic. That the true figure is surely less than $40 billion, and that it's not like this is some shell game where all the smart people involved already cashed out.

Re: And then the music stopped

#28

Post by nirvana »

I'm tired of "Stocks are gambling" nonsense like this. Some companies are valued on the fundamentals. In fact the best investment in the world right now is AAPL, which trades generally between 12-14 times its trailing EPS. This recent "miss" was a "bad earnings quarter" and even then it grew at %20 year over year. (The lowest in the past 4 quarters by far).... but if Apple was a company that only and always grew at %20 year over year, then "on the fundamentals" Apple should be trading at 20 times EPS.

This makes Apple a screaming deal. There are other good stocks out there, and if you decide to trade on the fundamentals, you can make great returns. Its not very difficult.

The thing is, part of the reasons it is so easy is that almost the whole world has convinced themselves that its impossible and instead doesn't invest or puts their money into index funds.

Re: And then the music stopped

#29

Post by justindz »

unreal37 wrote: post #25

Plenty of people were warning about Groupon and Zynga being unsustainable businesses BEFORE they went IPO, and I have no sympathy for those that played that risky game. It's disingenuous to be outraged about those two stocks being below the IPO price when it was a common sentiment before they went IPO. Facebook is actually a real business, making $1B/quarter in revenue. Maybe they should have went IPO at $8 and allow…

Your last line is interesting and seems like a useful line of discussion to come out of this otherwise PR-laden exercise. Is there somewhere that you could elaborate on the evidence and suggest alternatives? You'd have at least one reader.

Re: And then the music stopped

#30

Post by harold »

Those "last-sucker-in-line-investors" could have also invested in LinkedIn [1] and Zillow [2], both of which have done reasonably well after their IPO.

Easy to pick a company to use to reinforce a message (37 Signals would have made a better case against non tech company GM [3], which had hype and government assistance and is still on the way down)

[1] http://finance.yahoo.com/q/bc?s=LNKD+Basic+Chart&t=2y

[2] http://finance.yahoo.com/q/bc?s=Z+Basic+Chart&t=2y

[3] http://finance.yahoo.com/q/bc?s=GM+Basic+Chart&t=2y

* edited for formatting

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