The Problem with Breathless Speculation over Tech IPOs

The back and forth about Facebook and Groupon going public is getting old

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Despite reports of stalls and delays, both Facebook and Groupon are evidently back on track to IPO within the next six months or so. According to a report in Thursday's New York Times, Groupon has sorted out its trouble with the Securities Exchange Commission over a leaked memo during its quiet-period and "is now aiming to go public in late October or early November." Facebook's plans are less clear, but Times sources did deny a Financial Times report that Mark Zuckerberg was delaying his company's IPO until the end of 2012. "Facebook, the social networking giant, whose potential for a public offering is the stuff of breathless speculation, has yet to nail down a plan," says The Times. "The company is still planning to go public in the first half of next year, people close to the matter said on Wednesday."

This latest round of "breathless speculation" brings up a broader question about the consequences of Facebook and Groupon's false starts. Since the companies are so young, many people wonder if the sloppy IPO-planning is a symptom of disorganized leadership, and because the buzz that follows their progress is so deafening, others wonder if there's too much hype, the kind of hype that points to a bubble. What do these companies gain by going public, anyways? And what do they lose?

Rushing to go public can create unnecessary distractions, says consultant Lise Buyer. She advised Google on their IPO and told the Financial Times that Facebook, for one, should take their time:

There's really no reason to rush a deal. The company doesn't need the money. It is a little easier to focus when you're private. They'll go when they're good and ready, not before. …There are so many things you don't have to do until you take public shareholder money. You don't have to take investor phone calls or show up at investor conferences.

But seriously, shareholders are a drag, argues Dan Primack at Fortune:

Facebook has the option to remain private indefinitely, allowing existing shareholders to generate liquidity via the private secondary markets.

Why would it do so? Well, because public reporting isn't the only downside of going public. Public companies also have to worry more about short-term earnings than do private companies, and management is required to kiss the butts of hedge fund managers and analysts. Can you seriously see Mark Zuckerberg doing that? Or at least doing it well?

Tapping the brakes after filing paperwork can do damage. Benchmark Capital's Bill Gurley helped orchestrate Amazon's IPO and has his doubts about all of the bubble anxiety. Nevertheless, Gurley thinks that Groupon could learn a thing or two from the last bubble:

I have been quite surprised by the recent trend in companies that file and then chose to delay. If you are going to file the S-1, it is imperative that you are prepared to follow through. Standing too long in the middle of the financial equivalent of the river Styx can have severe consequences.

Why is this a bad thing? The longer a company remains on file without pricing, the more questions arise about “why” the company may be struggling to move forward.

It's worth pointing out that this has been a bad year for IPOs. Evelyn M. Rusli and Michael J. de la Merced at The New York Times skip over LinkedIn's famously blockbuster IPO and point to data that shows what a crappy year it's been for newly minted tech stocks:

Already this year, companies that began their newly public lives buoyed by investor interest have since seen their stock gains fade. Shares of Renren, a Chinese social networking company, have fallen 52 percent below their $14 offer price. And shares of Demand Media, a big online content producer, have slipped 55 percent below their $17 offer price.

Of the 97 companies that have gone public in the United States this year, 64 percent of them now trade below their offer price, according to data from Thomson Reuters.

Regardless of the timing, getting the IPO right matters most, says Richard Waters at the Financial Times:

Its execution over the past year or so--since the last outcry provoked by changes to the default privacy settings of its users--has been excellent, but it can’t afford missteps. And with so many ex-Googlers on board, there will be plenty of voices warning Mark Zuckerberg of the massive distraction represented by an IPO, not to mention the difficulties of holding on to talented engineers once the company is public.

There will be plenty of time for an IPO another day.

This article is from the archive of our partner The Wire.