First all, Happy New Year to all! This is the first post of 2012, and I want to give my 2 cents on why tech stock, especially new IPOs aren’t doing so hot.
Market not understanding value of tech?
This is a common excuse tech companies use to explain their lukewarm stock performance. Just look at Zynga (NASDAQ: ZNGA); their IPO was 100 million shares for $10 but the stock has been trading below the IPO price at around $9. Groupon’s IPO (NASDAQ: GRPN) was also fairly flat. Initially the stock was priced at $20 raising the company more than $700 million but the price is hovering around the IPO price. So why have these new IPOs not taken off like Google or Yahoo back in the days?
I think the problem is not that investors don’t understand tech companies, but simply that they do not trust them to be profitable in the long term. We look at the business model of Zynga – games are web-based, free to play, simplistic game-play, and lead-gen supported. The gamer doesn’t have to actually pay for the game unless they need special game currency to be more successful in the game. In this case, they can either take out a credit card, or fill in a bunch of offers from lead-gen sources to pay. The only innovation Zynga brings to the table is the idea of a social game where you can connect with your friends on Facebook. This does add major value to the game, but it is nothing new. In fact this has been done on consoles in years, Facebook is just a more convenient place than XBOX Live or PSN. Therefore, Zynga is surviving on a shoestring of an idea that is incomparable to the value that companies like Google, Apple and Microsoft brought to the market. How can investors get excited about Zynga?
I don’t think investors are not understanding tech, they have seen so much change in tech over the past 10 years. It is simply getting more difficult to wow them. Continue reading What is up with tech IPOs?