McSweeney’s Internet Tendency: Prospectus for Silicon Valley’s Next Hot Tech IPO, Where Nothing Could Possibly Go Wrong.

http://www.mcsweeneys.net/articles/prospectus-for-silicon-valleys-next-hot-tech-ipo-where-nothing-could-possibly-go-wrong



McSweeney’s Internet Tendency: Prospectus for Silicon Valley’s Next Hot Tech IPO, Where Nothing Could Possibly Go Wrong.



Form S-1

Registration Statement

Under

The Securities Act of 1933



Ponzify, Inc.



LETTER FROM THE FOUNDERS



Forget Facebook. Forget Groupon. Forget everything you know about Silicon Valley. Because Ponzify isn’t like other tech companies. We don’t promise results. We show them to you, on a piece of paper, that has your name and a monetary figure that increases every month.



Our business model is simple: Attract users, advertisers, positive press and a corporate buyer; then, pull the cord on that golden parachute and have cable news book you as an expert on startups from time to time. There may be a book deal in there, too. We haven’t decided.



Users love our product because it’s something free. Venture Capitalists love it because they can imagine themselves talking about it at T.E.D. or on Charlie Rose. Trust us: Once you invest in Ponzify, you’ll have a difficult time investing your money anywhere else ever again.



THE OFFERING



Ponzify, Inc., is offering 15,000,000 shares of its Class A stock. Several times, in fact. Ask enough questions, we’ll let you in on the super secret Class B voting shares. Threaten to go to the SEC, and we’ll meet you near the airport. Just to talk.



We anticipate the initial public offering price of our Class A common stock will be between $35 and $42 per share. Mind you, the bank we hired to underwrite this transaction is privately telling its other clients something entirely different. Something about a guaranteed swing in the stock price and a big pay day for insiders. Sounds sweet. Wish we could get in on that



We expect to list our Class A common stock under the symbol PNZI.



RISK FACTORS



An investment in Ponzify involves significant risks.



User metrics

A significant portion of our income is derived from advertisers who still buy this whole “clicks” and “page count” business. Thus, we plan a vigorous defense of our current metrics while making up new ones with impressive-sounding names. For instance, KonBuy (short for “Konfirmation Bias”) scores the popularity of apps and websites based on whether their titles are intentionally misspelled portmanteaus.



Age Factor

Our CEO, CFO, COO and a bunch of other acronyms were all born after Nirvana released “Nevermind”.



Experience

Did you watch that two-part Frontline special on PBS about the inside story of the global financial crisis? We did. We were like “Dude, that’s like what we’re doing!”



SPECIAL NOTE REGARDING

FORWARD-LOOKING STATEMENTS



This prospectus contains forward-looking statements. For instance, “Our company is built upon a viable revenue model” is a forward-looking statement. All statements other than statements of historical fact, particularly those made by our founders to the press, shareholders or women in bars, will be considered forward-looking statements.



USE OF PROCEEDS



We assume that the net proceeds from the sale of our Class A stocks will net us about $600 million. That money will be used to purchase office space as well as a variety of office equipment, including Dig Dug, Dragon’s Lair and Frogger. We figure that due to the bloated staff size we intend to maintain for far too long, we’ll need at least two Trons. Also, we plan to pay the following celebrities to appear at our recklessly expensive 1st anniversary party: Leonard Nimoy, Don Rickles, The Rolling Stones, the U.S. women’s volleyball team and the entire cast of Game of Thrones (who will be asked to appear costumed and in character).



BUSINESS



Overview

Ponzify is a solutions-oriented global technology leader that specializes in selling paper products.



How we generate revenue

We employ a three-prong strategy to generate revenue.



1. Investment

Until now, if someone asked us if we had V.C., we’d make a joke about how, no, we use condoms. We still make that joke, but now Venture Capitalists hand us a check for a few million every time we do. Apparently, just saying “mobile strategy” is enough of a mobile strategy.



2. Advertising

We tried selling our product to users but that failed miserably; so, we turned to an ad-driven model. The way it works is, we give away the product for free, then lure advertisers with the promise of connecting them to millions of people who hate to pay for things. Amazingly, it works.



3. Accounting

Our primary measurement of revenue is a non-GAAP accounting principle known as Adjusted Consolidated Assumed Income (ACAI). ACAI is an ancient accounting remedy that can slow the aging process of most balance sheets and rejuvenate the face of any company, no matter what the medical community or the FTC might tell you.



CERTAIN RELATIONSHIPS

AND PARTY-RELATED TRANSACTIONS



Indemnification of officers and directors

This was, like, the first thing we did. Well, negotiate our golden parachutes, then this.



Indebtedness of Management

Management is fine. It’s the company you should be worried about. 



Read the article online here: McSweeney’s Internet Tendency: Prospectus for Silicon Valley’s Next Hot Tech IPO, Where Nothing Could Possibly Go Wrong.

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EXCLUSIVE: Here's The Inside Story Of What Happened On The #Facebook IPO - Business Insider

Looks like a lot of crying from the muppets. 

Although there may have been lowered estimates for earnings and revenues in 2012, the valuation still remains exorbitant.  

For example, at 20 times earnings, Facebook's valuation should be +/- $20 billion, at 30x, +/- $30 billion.  At today’s price of $32/share, the company is valued at close to $90 billion!!

EXCLUSIVE: Here's The Inside Story Of What Happened On The Facebook IPO

Henry Blodget | May 22, 2012, 5:30 PM 

Earlier, we reported that the analysts at Facebook's IPO underwriters had cut their estimates for the company in the middle of the IPO roadshow, a highly unusual and negative event.

What we didn't know was why.

Now we know.

The analysts cut their estimates because a Facebook executive who knew the business was weak told them to.

Put differently, the company basically pre-announced that its second quarter would fall short of analysts' estimates. But it only told the underwriter analysts about this.

The information about the estimate cut was then verbally conveyed to sophisticated institutional investors who were considering buying Facebook stock, but not to smaller investors.

The estimate cut appears to have influenced the investment decisions of at least some institutional investors, dampening their appetite for Facebook stock, and crucially, affecting the price at which they were willing to buy Facebook stock.

As I described earlier, at best, this "selective disclosure" of the estimate cut is grossly unfair to investors who bought Facebook stock on the IPO (or at any time since) and didn't know about it.

At worst, it's a violation of securities laws.

This latest chapter in the Facebook IPO story began this morning, when Reuters' Alistair Barr reported that the research analysts at the company's lead underwriters—Morgan Stanley, Goldman Sachs, and JP Morgan—had cut their earnings estimates for Facebook during the company's IPO roadshow. This was highly unusual, if not unprecedented (I've been in and around the tech IPO business for almost 20 years, and I've never heard of it happening.)

Analysts cutting estimates is generally regarded as significant negative news for stocks. This is especially the case when the analysts who cut their estimates are very close to a company—and, therefore, are thought to have particularly good information.

(In the old days, before the implementation of Regulation Fair Disclosure, companies used to manage the market's expectations by telling trusted analysts to change their estimates. Reg FD banned that practice.)

An investor who wasn't told about Facebook's estimate cut.

The fact that some potential Facebook investors were told of the analysts' estimate cuts and others were not would seem to be a major "selective dissemination" issue.

It is inconceivable that a reasonable investor would consider the sudden reduction of the underwriter analysts' estimates to be immaterial to an investment decision.

The SEC and FINRA appear to have acknowledged this, and they may now investigate what happened.

More broadly, everyone is still trying to understand what happened with the pricing of the IPO, which was hyped up to be the offering of the century. We now have some more information on that.

Given the PR and legal disaster that the Facebook IPO is rapidly becoming, most official communications channels have gone silent. Facebook declined to comment. Morgan Stanley did not return a call and email seeking comment.

We have spoken to several sources familiar with aspects of the transaction. We do not have complete details yet, but a general picture of what happened is starting to take shape. For now, please regard most of the information below as scuttlebutt, as it has not yet been confirmed.

The story we are hearing is this...

THE FACEBOOK IPO

WATCH: How Low Will FB Stock Go?

In early May, as Facebook prepared to kick off its IPO roadshow, the research analysts at the company's lead underwriters developed financial forecasts to facilitate the marketing and pricing of the IPO.

Such estimates are usually developed through close collaboration between the underwriters' research analysts and company management. These estimates are viewed by sophisticated investors as having been "blessed" by the company: They are perceived as revenue and earnings targets that the company has reviewed and is confident it will hit. Sophisticated investors use these estimates when they are developing "bids" for the stock, as a tool with which to help determine the price they are willing to pay.

Importantly, these estimates are not published anywhere.

Rather, in conjunction with industry convention (see below*), these estimates are conveyed verbally to institutional investors who are considering investing in the IPO.

(This is an absurd and unfair practice. The estimates themselves are material information--the consensus of smart, well-trained analysts who have worked with the company's management to develop realistic forecasts. Most investors don't even know that these estimates exist, let alone that they're whispered verbally to only a handful of big investors. All potential investors should have easy access to these estimates, as well as to any logic underlying them. The SEC needs to change the rules here.)

The same development and dissemination of estimates also happened with Facebook.

As the Facebook roadshow began, institutional investors who were considering investing in the stock were verbally given the underwriters' initial estimates for the company. And, initially, there was a lot of institutional enthusiasm for the stock.

Several days later, however, on May 9th, Facebook filed an amended IPO prospectus with the SEC.

This prospectus contained new disclosure language that had not previously appeared in Facebook's SEC filings. The language was on page 57 of the prospectus, in a section discussing the company's recent financial and user trends:

Based upon our experience in the second quarter of 2012 to date, the trend we saw in the first quarter of DAUs increasing more rapidly than the increase in number of ads delivered has continued. We believe this trend is driven in part by increased usage of Facebook on mobile devices where we have only recently begun showing an immaterial number of sponsored stories in News Feed, and in part due to certain pages having fewer ads per page as a result of product decisions.

The appearance of this language unnerved some sophisticated investors and analysts, who took it as a  sign that Facebook's business might have deteriorated. The language was vague, however, and it did not make clear that Facebook's second quarter was weaker than expected. (To infer that message from the language, you had to know that Facebook's first quarter had been weak--and that the cause had been the divergence between user growth and revenue growth.)

Soon after Facebook amended its prospectus, all three analysts at the company's lead underwriters—Morgan Stanley, JP Morgan, and Goldman Sachs—cut their estimates for Facebook's Q2 and the full year.

These estimate cuts were conveyed verbally to sophisticated institutional investors.

And, not surprisingly, these investors viewed the estimate cuts as a startling and negative development.

One important question, of course, was why all three underwriter analysts cut their estimates.

Had they all read the new sentence in the prospectus above and realized that the second quarter was weak? Or had they been tipped off?

It seemed inconceivable that all three analysts could have read the language above and concluded independently that Facebook's Q2 was weak and therefore decided to take the highly unusual step of cutting estimates in the middle of a company's IPO roadshow.

More likely, it seemed, someone had directed the analysts to cut their estimates—most likely someone with inside knowledge of how Facebook's Q2 was progressing.

And we have now heard from one source that that is what happened.

One of the underwriter's analysts has said he was told by a Facebook financial executive to cut his estimates.

According to another source with insight into the Facebook IPO process, until the underwriters' analysts cut their estimates, demand for Facebook's stock among sophisticated institutional investors was high. Once these investors heard about the estimate cut, however, they became more cautious about the IPO.

(Again, an estimate cut like this during a roadshow would be hard to interpret as anything but negative. One institutional investor I spoke to said he has looked at more than 1,200 IPOs over the course of his career, and he has never heard of this before. This is especially true because the underwriter estimates aren't really "estimates"--they're more like company guidance.)

The estimate cut, moreover, was followed by three additional pieces of information that were interpreted negatively by some institutional investors:

1) The price range for the deal was increased, which made the deal even less attractive in light of the estimate cut,

2) The size of the deal was increased, which meant that more stock would be sold, and

3) Many smart institutional Facebook shareholders like Goldman Sachs decided to sell more stock on the deal—the "smart money," in other words, was cashing out.

Meanwhile, during private roadshow meetings, Facebook executives were reportedly "signalling" to some sophisticated investors that Facebook's advertising revenue would not grow as rapidly as some potential investors had hoped. Facebook's advertising business is driven primarily by company-to-company sales efforts, not by the self-serve ads that drive Google's business. Facebook executives reportedly made clear to sophisticated investors that this would limit the rate at which Facebook's ad business could grow.

By the second week of the roadshow, after the estimate cut and price increase, some institutional investors became more cautious about the IPO. According to one investor who looked at the deal, institutions "got the willies" and started to talk about paring back their stock orders.

Meanwhile, out in the real world, demand for Facebook stock was hitting a fever pitch. One senior stockbroker at a major brokerage firm reported that he "had never seen such demand" for an IPO.

These individual investors, needless to say, were not likely aware that the research analysts at the company's lead underwriters had cut their estimates for the company. They were also, presumably, unaware that Facebook's Q2 was weaker than expected.

At the end of last week, the time came to decide on the IPO price for Facebook's stock.

This process was handled by Facebook's lead underwriter, Morgan Stanley, and Facebook executives.

According to one source (unconfirmed--this really is just scuttlebutt), based on the book of orders submitted by both institutional and retail investors, Morgan Stanley found that there were two distinct price levels at which investors were interested in buying stock.

Institutional investors, having digested the news of the underwriter estimate cut, were comfortable buying Facebook stock at $32 a share.

Retail investors, meanwhile, who were presumably unaware of the estimate cut, were comfortable buying Facebook at $40 a share.

Knowing that a big percentage of the IPO stock could be sold to retail investors instead of institutional investors, Facebook and Morgan Stanley decided to price the IPO at $38.

Although the precise allocations could not be learned, a source says that Morgan Stanley allocated a far larger percentage of the Facebook deal to individual investors than is normally the case in an IPO like this.

On Friday, May 18th, Facebook's stock opened at $42. It spent most of the day above $40, giving short-term traders a chance to flip for a quick gain, and then sank quickly. With heavy support from Morgan Stanley, the stock closed on Friday at just above the IPO price.

Given the amount of stock that had been sold, Morgan Stanley could not support Facebook's stock price indefinitely without exposing itself to huge losses. In two trading days this week, as the IPO hype wore off and news of the analyst-estimate cut spread, Facebook's stock plummeted.

The stock closed today at just over $31 a share, about the price that institutional investors were reportedly comfortable paying for it.

The SEC and FINRA have already said they may look into the Facebook IPO process. The Massachusetts Secretary of the Commonwealth has also just announced that has subpoenaed Morgan Stanley over the issue.

So, at some point soon, we will likely get the full story.

In the meantime, it's hard to conclude anything other than this:

In one of the biggest IPOs in history, in which a huge amount of stock was sold to small investors, privileged Wall Street insiders once again got top-notch information...and individuals got the shaft.

UPDATE: Reuters' reporters Poornima Gupta and Alexei Oreskovic have uncovered the before-and-after Facebook estimates that were verbally conveyed to big investors (below). As you can see, both sets of numbers are carefully coordinated across the firms. There is no way that the estimates would be this close without explicit direction from Facebook. There is also no way that an investor could get this information from Facebook's IPO prospectus. These disclosure rules need to be changed...

Here are the detailed figures from the four banks, according to one of the investors who received the new numbers.

Lowered full year revenue estimate for 2012

Morgan Stanley -- $4.854 bln (new)from $5.036 bln (old)

Bank of America -- $4.815 bln (new) from $5.040 bln (old)

JPMorgan -- $4.839 bln (new) from $5.044 bln (old)

Goldman Sachs -- $4.852 bln (new) from $5.169 bln (old)

Lowered estimates for second-quarter 2012

Morgan Stanley -- $1.111 bln (new) from $1.175 bln (old)

Bank of America -- $1.100 bln (new) from $1.166 bln (old)

JPMorgan -- $1.096 bln (new) from $1.182 bln (old)

Goldman Sachs -- $1.125 bln (new) from $ 1.207 bln (old)

Lowered 2013 Earnings per share estimate

Morgan Stanley -- 83 cents (new) from 88 cents

Bank of America -- 64 cents (new) from 66 cents

JPMorgan -- 66 cents (new) from 70 cents

Goldman Sachs -- 63 cents (new) from 68 cents

SEE ALSO: BOMBSHELL: Facebook Bankers Secretly Cut Estimates In Middle Of IPO Roadshow

* Several readers have asked why underwriters are allowed to verbally disseminate analyst estimates to big clients. This is an excellent question. The short answer is that they shouldn't be allowed to: It's very unfair to anyone who doesn't happen to be a big client.

The reason this rule developed, ironically, was to protect small investors from sleazy brokerage firms that might hire analysts to publish puffed-up estimates only to sell a deal. Big investors, the thinking went, were grown-up enough to be able to evaluate the estimates for themselves, whereas smaller investors weren't.

The Law of Unintended Consequences then led to the current situation, which is worse: Institutions get highly material estimates shaped by the company. Small investors don't.

Read the story online here: EXCLUSIVE: Here's The Inside Story Of What Happened On The Facebook IPO - Business Insider

Facebook at 99 Times Profit Exceeds 99% of S&P 500 Index - Bloomberg

Facebook at 99 Times Profit Exceeds 99% of S&P 500 Index
Facebook Valuation Could Rise Higher on Road Show

Facebook Inc. (FB) is betting its growth prospects will persuade investors to pay 99 times earnings for its initial public offering, a higher multiple than 99 percent of companies in the Standard & Poor’s 500 Index.

The world’s most popular social-networking site will seek a market value of as much as $96 billion, offering shares at $28 to $35 each, a regulatory filing showed yesterday. The Menlo Park, California-based company will begin meeting investors next week and is scheduled to price the offering on May 17, data compiled by Bloomberg show.

The high end of the proposed valuation would make Facebook more costly than every member of the S&P 500 relative to earnings except for Amazon.com Inc., Leucadia National Corp. and Equity Residential, data show. While 27-year-old Chief Executive Officer Mark Zuckerberg has amassed more than 900 million users since starting Facebook in 2004, his challenge is to stem slowing sales growth amid increasing competition from Google Inc. (GOOG) and Twitter Inc.

“It’s really, really expensive,” said Bob Rice, managing partner at Tangent Capital Partners LLC, on Bloomberg Television. “It’s very hard for me to get my arms around a valuation of 80, 90 billion dollars for a company that did a couple of hundred million dollars of profit in the quarter.”

Slowing Growth

Facebook’s earnings in the 12 months through March 31 were $972 million, with sales of more than $4 billion. Sales may rise 64 percent to $6.1 billion this year, according to researcher EMarketer Inc. That would be the third straight year of slowing growth in revenue, based on data from the filing.

Facebook and its holders plan to sell about 337.4 million shares. At the high end of the range, the IPO would raise $11.8 billion, making it the largest initial share sale on record for an Internet company.

Chief Operating Officer Sheryl Sandberg is among executives pitching the IPO to investors. The company was considering a valuation of as high as $100 billion, people with knowledge of the matter have said. At that amount, Facebook would have a market capitalization about half as high as Google’s -- even though it has one-10th the sales.

Google Comparison

“If you compare it to the number of employees, compare it to the earnings, the valuation is still several times greater than other flagship technology companies,” said Ray Valdes, an analyst at Gartner Inc. in San Jose, California. “Still, there’s a tremendous amount of interest, and the valuation is lower than expected.”

Facebook is offering 180 million shares, while existing owners such as Accel Partners and Digital Sky Technologies are offering 157.4 million, according to the filing. Zuckerberg is offering 30.2 million of his 533.8 million shares. The majority of his net proceeds will be used to pay taxes associated with exercising a stock option.

Zuckerberg may control about 57 percent of the voting power of Facebook’s outstanding capital stock after the offering, according to the filing. Sandberg, who isn’t selling in the offering, holds 1.9 million shares.

Facebook will have 2.14 billion Class A and B common shares outstanding following the IPO, worth about $75 billion at the top end of the price range. Including restricted stock units, options and common stock to be issued following the purchase of Instagram Inc., the shares outstanding would total 2.74 billion, implying a market value of $96 billion at the high end.

Facebook’s Float

Facebook isn’t pursuing the so-called “low-float” strategy employed by some Internet companies to boost initial demand for their stock. The company is making 16 percent of its class A and class B common stock public in the sale, a higher proportion than Internet peers Groupon Inc., LinkedIn Corp. and Pandora Media Inc. sold in their IPOs, Bloomberg data show. Taking into account other shares, options and restricted stock units that may be added, the float would be about 12 percent.

On average, the 28 Internet companies that have completed U.S. IPOs since the beginning of 2011 have floated 17 percent of their shares, Bloomberg data show. In a typical initial offering, investors receive shares worth closer to 20 percent of the company, according to Paul Deninger, a senior managing director at New York-based investment bank Evercore Partners Inc.

Internet IPOs

Facebook filed for the IPO Feb. 1, using a placeholder amount of $5 billion. Zuckerberg, a co-founder, is the company’s top holder, filings show. Morgan Stanley, JPMorgan Chase & Co. and Goldman Sachs Group Inc. are leading Facebook’s IPO. The shares will be listed on the Nasdaq Stock Market under the symbol FB.

The initial share sale would dwarf the 2004 IPO of Google, Facebook’s biggest competitor for online ads and the world’s most valuable Internet company. Google’s offering, the same year Zuckerberg helped found Facebook, raised $1.9 billion and valued the company then at about $23 billion. The company currently has a market value of almost $200 billion.

Facebook follows fellow Internet companies such as Zynga Inc. and Groupon in going public. Zynga, the maker of Internet games such as “Farmville,” raised $1 billion in its December IPO, while online-coupon provider Groupon raised $805 million, including an overallotment option, in November. Both stocks are trading below their offer prices.

MySpace, Friendster

Zuckerberg co-founded Facebook with his college roommates at Harvard University, developing a site that let students socialize over the Web. He later made the service accessible to everyone, intensifying competition with sites such as MySpace and Friendster.

Both eventually succumbed to Facebook, which lured users with innovative features like News Feed, which lets people check on friends’ activities in a single place. News Corp., which bought MySpace in 2005, sold the site last year for a fraction of the price it paid. Friendster revamped itself as a social- gaming platform following its 2009 purchase by Malaysia’s MOL Global Ltd.

Facebook’s revenue surged 88 percent last year to $3.71 billion, with online advertising accounting for almost all of it. The company also is sharpening its focus on the mobile market as users spend more time accessing the site through Internet-ready handheld devices such as the iPhone. In the first quarter of 2012, sales climbed 45 percent to $1.06 billion.

“Some people will buy Facebook stock no matter what -- they’ll just buy it,” said Francis Gaskins, president of researcher IPOdesktop.com in Marina Del Rey, California. “There’s going to be an initial push of enthusiasm and money, but ultimately, in a year or so, it will come down to valuation metrics. It has to.”

To contact the reporters on this story: Lee Spears in New York at lspears3@bloomberg.net; Sarah Frier in New York at sfrier1@bloomberg.net

To contact the editors responsible for this story: Jennifer Sondag at jsondag@bloomberg.net; Tom Giles at tgiles5@bloomberg.net

Read the whole story online here: Facebook at 99 Times Profit Exceeds 99% of S&P 500 Index - Bloomberg

The Facebook richlist - FT.com

The Facebook richlist - FT.com

Estimated net worth of Facebook stock based on last transactions:


Source: FT.com

See the whole article online here: The Facebook richlist - FT.com

Should you invest in Groupon? -Infographic

The Groupon Investment Flow Chart

Well, it’s finally here: Groupon’s sets the price for its IPO tomorrow, and goes public on Friday. Everything everyone has said about the wildly hyped billion-dollar valuations, the competition they face, the backlash to the backlash, and the inner-workings of the company will be put to the test of that mythical, nebulous creature known to the world at large as “The Market.”
As for what you’re going to do about it? Well, Betabeat is here to help.*
Please meet The Groupon Investment Flow Chart:

groupon-betabeat-chart-larger-1024x928.png (PNG Image, 1024x928 pixels)

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________________________ The MasterBlog

How Groupon Was Founded

INSIDE GROUPON: The Truth About The World's Most Controversial Company

Image: democonference

It's August 2011, and Andrew Mason is agitated.
He's at his desk in the middle of Groupon's wide open, call center-style office in Chicago. His headphones are on. His brow is furrowed.
His company had been the darling of the business press for the past two years. Suddenly it's not.
He can't hang on to a COO. The SEC is asking questions. Industry executives are calling him a ponzi schemer.  Early employees are demanding six-figure pay for 9 to 5 hours. One even filed a lawsuit. Merchant customers are screaming. And Mason and his board, having helped themselves to $900 million of cash that could have gone to the company, are are now being blasted for incompetence and greed.
What a turnabout from a few months earlier, when Groupon was the talk of Wall Street. Then, Groupon was one of the fastest-growing companies in history, spurning $6 billion takeout offers from Google, preparing to go public at a valuation fo $25+ billion. And now everyone was talking about it running out of cash!
So what happened? How did things go so wrong?
And now that Groupon is finally going public, how will the Groupon story end?
This story, as told to us by insiders, answers some of these questions. Our sources all asked to remain anonymous, either in deference to the SEC's "quiet period" rules for companies that plan to go public or in order to remain in compliance with severance agreements with Groupon. Groupon itself declined to comment.

GOING CAPITALIST

Image: AP

In 2006, Andrew Mason was a music major, getting a graduate degree in public policy at the University of Chicago.
Mason maintained a website called Policy Tree, which featured articles like "Karl Rove should be fired or resign over the C.I.A. leak."
On the side, he was doing contract work building databases at a company founded and funded by an entrepreneur named Eric Lefkofsky.
Lefkofsky was already a very rich man, having built several businesses around call centers and the Internet. Mason was an intern, "kind of squatting in their offices," according to one source.
In January 2007, with Lefkofsky's backing, Mason started working on a company — a do-gooder enterprise called The Point.
The Point was a social media platform designed to get groups of people together to solve problems.
The Point was not intended to be a big money-making enterprise, and by one early employee's account, that was fine with most of the staff.
The Point launched in June. It gained modest traction in Chicago, but basically went nowhere.
Every Monday, Lefkofsky, Mason, and a handful of early employees would meet to talk about the Point's progress. One Monday, in the middle of 2008, Lefkofsky raised an idea he had that could revitalize the struggling start-up, based on a campaign he'd seen launched on The Point.
Ordinarily, people used The Point to organize around some sort of cause that might make the world a better place.
But in this case, a group of users decided their cause should be saving money.  Their plan was to round up 20 or so people who all wanted to buy the same product and see if they could get a group discount.
"Eric said maybe this is the thing that we do," says a source who was at the meeting. "Maybe we set up a separate page, make it dedicated to group buying."

At first, Mason and The Point's other early executives dismissed the idea. "It didn't seem core to our mission," says the person who was at the meeting.

Through the rest of the summer and early fall of 2008, Lefkofsky would not let that idea go. He'd bring up all the expensive purses his wife and all her friends were buying, and say, "It's crazy! Couldn't they buy 20 of them and get a discount?"

Groupon's Latest Value Raises Doubt -- Andrew Ross Sorkin - NYTimes.com

It looks mightily overvalued still..., but as the article notes:

in fairness, it must be acknowledged that LinkedIn, which had its I.P.O. earlier this year and was criticized for being overhyped, is worth about $9 billion. If you believe LinkedIn’s valuation makes sense, you should load up on Groupon because it looks downright cheap by comparison. (I may have a bridge to sell you, too.)

Here’s just one data point for comparison: LinkedIn is trading at 195 times its free cash flow. If Groupon were valued using the same multiple, it would be worth a whopping $48 billion.

Groupon is planning to sell only about 5 percent of the company, or 34.5 million shares, to the public initially. Having such a small amount of the company available should, at least temporarily, help keep interest high. (The laws of supply and demand are incontrovertible.)

None of this is to suggest that Groupon isn’t a great success story. The three-year-old company has built a remarkable business, upending the direct marketing industry. But that doesn’t mean the company is worth $10 billion — at least not yet.

Read the whole article here: Groupon's Latest Value Raises Doubt -- Andrew Ross Sorkin - NYTimes.com

Social Media Companies' Ridiculous Valuations

Can you say bubble?

Infographic: What the Largest Social Media Companies Are Worth

By Derek Thompson, The Atlantic

In 2010, LinkedIn made about $200 million in sales. In 2011, its stock price suggests a market cap of $9 billion. Trading at 45 times its revenue makes LinkedIn the highest price-revenue ratio of any stock in the world, said Espen Robak, president of the firm Pluris Valuation Advisors.

The rest of the social media brat pack is on the cusp of going public. Zynga's IPO could be weeks away. Facebook is expecting a $100 billion valuation by IPO in 2012. What kind of wild valuation multiples could we see from the next batch of upstarts? The cool chart below* answers that question. The upshot: Of the companies earning revenue, Twitter has the highest current revenue-valuation ratio.

http://cdn.theatlantic.com/static/mt/assets/what-were-reading/GLG-TECHBUBBLE_Infographic.png

* To answer the question posed by the chart (Is there a tech bubble?) the best answer is: This chart doesn't have the answer. Investors are willing to pay the prices they're paying for private and public stock either because they believe they can get their money out before the market realizes there is a bubble (a risky strategy) or because they really think that these companies will grow quickly and eventually settle at mundane multiples, like Google and Microsoft. Graph courtesy of Gplus.

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http://www.theatlantic.com/business/archive/2011/05/infographic-what-the-largest-social-media-companies-are-worth/239468

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Pandora Files for IPO, But Can It Ever Make Money? - Deal Journal - WSJ

Pandora Files for IPO, But Can It Ever Make Money? - Deal Journal - WSJ

By Shira Ovide

Online-music service Pandora Media today filed its much anticipated IPO, which gives us our first public glimpse at the company’s business plans and successes.

First, the good news.

Pandora’s revenue has sharply ramped up in the last couple of years. Revenue shot up from $19.3 million in the fiscal year ended Jan. 31, 2009, to $55.2 million for the next fiscal year. For the nine months ended Oct. 31, Pandora posted another huge revenue jump to $90.1 million. More than 85% of Pandora’s revenue comes from advertising, with the bulk of the rest from subscriptions that Pandora sells for ad-free streaming music.

Bloomberg News

Pandora founder Tim Westergren

But wow. Content acquisition — what Pandora pays for the rights to songs — is costing them a fortune. That’s the (very) bad news.

Those costs were $45.4 million for the latest nine month period — equal to half of Pandora’s revenue. The more people listen to Pandora and the more money Pandora makes, the more those costs will grow, putting pressure on the company to sell a boat load more ads than it does now. Largely because of the content acquisition costs, Pandora mostly has been unprofitable.

That’s not totally a surprise, of course. The music royalty fees long have been a question mark about Pandora’s business. Pandora fought hard several years ago to rework the music industry’s royalty fee structure. But now we know just how much those royalties are denting Pandora. On a percentage basis, those costs are down from about 80% of revenue in the fiscal year ended Jan. 31, 2009. But still: How sustainable is Pandora’s business if it has to pay out half or more of its revenue just for the rights to music?

Pandora doesn’t expect the problem to abate soon. The company said it expects it revenue growth rate will slow, because of competition and the “maturation of our business.” And here’s what the company said in its IPO filing about its profits (or lack thereof):

“[A]s our number of listener hours increases, the royalties we pay for content acquisition also increase. We have not in the past generated, and may not in the future generate, sufficient revenue from the sale of advertising and subscriptions to offset such royalty expenses. If we cannot successfully earn revenue at a rate that exceeds the operational costs associated with increased listener hours, we may not be able to achieve or sustain profitability. In addition, we expect to invest heavily in our operations to support anticipated future growth and public company reporting and compliance obligations. As a result of these factors, we expect to continue to incur operating losses on an annual basis through at least the end of fiscal 2012.”

Pandora Files for IPO, But Can It Ever Make Money? - Deal Journal - WSJ

LinkedIn's IPO to test appetite for Facebook | Reuters

LinkedIn's IPO to test appetite for Facebook

LinkedIn CEO Jeff Weiner talks during an interview during the Reuters Technology Summit in San Francisco, California May 17, 2010.

Credit: Reuters/Robert Galbraith

By Nadia Damouni and Alexei Oreskovic

NEW YORK/SAN FRANCISCO | Thu Jan 27, 2011 10:21pm EST 

NEW YORK/SAN FRANCISCO (Reuters) - LinkedIn Corp announced plans to go public this year in what could be a test of investor appetite for social networking websites ahead of a highly anticipated Facebook offering.
LinkedIn announced its intention to go public on Thursday, setting the stage for the company co-founded in 2002 by ex-PayPal executive Reid Hoffman to become the first social network to plant a flag on Wall Street.

But many investors will be watching LinkedIn's IPO to gauge the appetite for Facebook, now valued at $50 billion as the world's most dominant social network, and other Internet IPOs.
"Facebook has definitely escalated people's interest in the sector and I think there's a lot of demand (for more Internet IPOs)," said Rory Maher, an analyst with Hudson Square Research.

The number of shares to be offered and the price range have not yet been determined, according to the form S-1 registration statement that LinkedIn filed with the Securities and Exchange Commission.

Investor interest and valuations are surging for privately held Web companies like Facebook, Zynga and Groupon. LinkedIn revealed its plans a day after newly public Internet company Demand Media Inc saw its shares jump roughly 33 percent in their first day of trading.
Just this week, Groupon Chief Executive Andrew Mason said the company was considering an IPO and was in talks with bankers.

Facebook, the world's No. 1 Internet social network, recently raised $1.5 billion in funding in a deal that valued the company at $50 billion.

Facebook said recently it planned to publicly disclose its financial results by April 2012, a regulatory requirement triggered by the company's number of shareholders and a move that some believe could lead to a public offering.

LinkedIn's net revenue nearly doubled to $161.4 million in the first nine months of 2010, with $1.85 million in profit, according to the filing.

In contrast, Facebook, which has far more users worldwide, had $1.2 billion in revenue in the first nine months of 2010 and $355 million in profit, according to a Goldman Sachs prospectus pitching the company earlier this month to investors.

LinkedIn, which caters to professionals, has 90 million users, compared with the more than 500 million users of Facebook's mainstream social networking service.

Morgan Stanley, Bank of America and JPMorgan are among the book runners for the LinkedIn offering.

A portion of the shares will be issued and sold by the company, while a separate portion will be sold by certain stockholders of LinkedIn, the filing said. No specific details were disclosed.
LinkedIn's investors include Greylock Partners, Bessemer Venture Partners, Goldman Sachs and Sequoia Capital, a venture capital firm that has backed Yahoo, Google, Apple Cisco Systems and Oracle.

(Reporting by Nadia Damouni in New York and Alexei Oreskovic in San Francisco; Editing by Bernard Orr, Gary Hill)

LinkedIn's IPO to test appetite for Facebook | Reuters

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Skype files for IPO on NASDAQ

Skype, which last year became the largest carrier of international calls, has continued to grow briskly. In the year from June 30, 2009 to June 30, 2010, the company grew in registered users from 397m to 560m. During this time, users made 95bn minutes of voice and video calls

Skype starts process for public listing

By David Gelles in San Francisco

Published: August 9 2010 15:19 | Last updated: August 9 2010 16:20

Skype plans to raise up to $100m in an initial public offering, a move that would complete a dramatic journey for the company that less than a year ago was a subsidiary of Ebay.

Shares will be listed on the Nasdaq later this year according to a filing with the Securities and Exchange Commission

Ebay sold Skype to a group of investors last September after a series of contentious legal disputes between Skype’s management, its founders and Ebay. In the end, Ebay received $1.9bn for the company and retained a minority stake, short of the $2.6bn it paid for the company in 2005.

The new owners included Silver Lake Partners, the Canada Pension Plan Investment Board, and Andreessen Horowitz, a venture firm led by Netscape founder Marc Andreessen.

Skype’s founders, Niklas Zennstrom and Janus Friis, also joined the investment group after suing with claims that their company, Joltid, still retained the key technology to power Skype.

The SEC filing revealed Skype paid $343.8m to settle this dispute. As part of the settlement, Skype also invested $6m in Rdio, a new social music service founded by Mr Zennstrom and Mr Friis.

Skype, which last year became the largest carrier of international calls, has continued to grow briskly. In the year from June 30, 2009 to June 30, 2010, the company grew in registered users from 397m to 560m. During this time, users made 95bn minutes of voice and video calls.

“We believe the scale, global distribution and growth of our user base provide us with powerful network effects, whereby Skype becomes more valuable as more people use it, thereby creating an incentive for existing users to encourage new users to join,” the company said in its filing.

But most Skype users use the service for free. Just 8.1m of users pay and those that do are expected to spend an average of $96 each this year.

This is enough to keep the company profitable. In the first six months of this year, Skype generated $406.2m of revenues, but net income of just $13.1m. Of that, just $1.4m was income from operations.

To improve margins, Skype said it will focus on expanding its services for businesses and expanding its advertising and licensing. “We will continue to develop new monetisation models for our large connected user base,” it said. “We currently generate a small portion of our net revenues through marketing services (such as advertising) and licensing, which we expect will grow as a percentage of our net revenues over time.”

Skype’s filing comes a week after Demand Media filed for its own IPO, and could signal an opening in the long-stagnant market for public offerings.

Goldman Sachs, JP Morgan and Morgan Stanley are underwriting the Skype IPO, with Citi, Credit Suisse and others also participating.

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