IPOs have cratered the most exciting tech companies by replacing unquantifiable hope with a very quantifiable number -- stock price -- that could make complicated financial stories seem simple
When Groupon was the fastest growing company in American history in late 2010, 18 months (and several millennia in social media buzz-years) ago, it came as a surprise to the company's biggest boosters that some investors were still nervous. No matter how you dressed it up, they said, the coupon business was still the coupon business, and it seemed impossible to imagine that the most spectacular idea of the young century was to help groups get cheaper sandwiches and leg waxes.
Now that investors are dumping Groupon stock, it's easy to look back and say, Haha, I knew that company was doomed! But I can see all of you laughers trying to take credit, and guess what? I don't believe you. Not all of you, at least.
Yes, there were warnings signs that Groupon wasn't Google. For an Internet company, Groupon relied on considerable labor and marketing costs, which it needed to create and maintain its deals. But there was still reason to think that online coupons were a decent idea whose time had come; that using discounts to let companies more effectively manage their inventory represented real innovation; and that a company whose revenue grew 22X in one year simply had to be superlative at something.
Well, investors are saying so much for that, as big names like Marc Andreessen are dumping the stock, even after it's lost 75% of its peak value. In other words, they are saying: At 20% of the IPO market cap, Groupon still isn't the right price to hold.*
The Wall Street Journal, splashing the Groupon story at the top of its Monday newspaper, declared: "Backers Retreat From Young Internet Firms That Haven't Lived Up to Hopes."
That disillusionment eventually leads the writers to Facebook, a company once valued above Amazon.com, Visa, and McDonald's. Today the stock is rolling around the $20 mark, more than 50% down from its all-time high. The easy conclusion is that Facebook, like Groupon, was both the recipient and the victim of unrealistic expectations. Baked into both IPOs prices was an unquantifiable portion of, well, hope. It was, perhaps, uncritical hope that, when met with the harsh realities of a publicly traded stock -- a number that more than metaphorically represented the health of the company -- promptly deflated.
The fact is that, at least with Facebook, the stock price has changed much more than the fundamentals of the company. It is still rapidly approaching one billion users. It still commands the daily attention of half a billion people. It is still struggling to monetize those users at more than $4 a year. And it is still the underpinning of so much content on the Web that it is practically impossible to sign up for any service without being interrupted by the Facebook logo asking you to connect with friends. These dueling facts -- the epic reach and meager financials of Facebook -- were always a part of the company in the weeks and hours before the IPO. It was only when the stock fell 20%, then 30%, then 50%, that journalists suddenly discovered for themselves that, not only was Facebook a mirage, but also Mark Zuckerberg should be fired.
Well, maybe he should! Maybe he should have been fired a long time ago. Or maybe he will make Steve Jobs look like Steve Ballmer. Nobody knows. And journalists who pretend they have a better idea are merely, to borrow a phrase from Daniel Kahneman, "answering the simpler question." Is Facebook a company with a Google-y or Apple-y future? Maybe. Nobody knows. Is Facebook's stock performance embarrassing? That's a simpler question. And so, it is the question tech writers are answering today.
Does Groupon's weak 2012 hail the end of the new-tech/social-media wave? Maybe. Nobody knows. Is it sensible to write an article tying the investor exodus from Groupon to the disappointing performance of newish public tech companies that frankly have nothing to do with either Groupon's business model or Groupon? I don't know if it's sensible. But it is certainly simple.
*Or that it's simply in an unsustainable business. Groupon is still growing, with both overall revenue and billings (what it collects from deals before paying out to merchants) up around 40% from 2011. But its biggest competitor in the online deals space, LivingSocial, is already pivoting away from deals -- or, at least, adding business units around its core to possibly prepare for a future where not enough merchants agree to these discounts to make them as lucrative as analysts once hoped. This summer, the company will start testing new tech products that look more like business solutions for companies in Washington, D.C., where LivingSocial is based. "Company executives declined to provide details about the exact nature of the products, but said they will likely help small businesses with digital marketing, customer loyalty and point-of-sale operations," the Washington Post reported in June.
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