Out, Damned Stock! Web 2.0 IPOs Hope for an Amazon Ending (While Fearing a Pets.com Fate).
Now is the summer of a social network’s discontent, made glorious by this tweet of snark:
All the clouds that low’red upon this house of daily deals in the deep bosom of mockery buried:
And the world is grown so bad for social gaming, that wrens make prey where eagles dare not perch:
With all apologies to William Shakespeare’s “Richard III,” it’s been a very bad week for the trio of the highest profile Web 2.0 companies — Facebook, Groupon and Zynga — that just a year ago were flying pretty high.
Too high, as it turned out, and now they have been felled low — at least by Wall Street investors, who have been furiously bidding down the companies to valuations unimagined until recently.
Naturally, the noise levels on the situation ratcheted up heavily as last week drew to a close, with innumerable media stories chronicling the woeful stock situation.
Facebook — due to worries about revenue growth, mobile problems and a pile of unlocked shares flooding the market — hit a record low since its May 18 offering, down 50 percent to $19.05 on Friday.
Zynga, which also showed weaker than expected results recently — and with concerns about the lasting power of its social games — is now at $3. That’s down 69 percent from its IPO.
And Groupon — perhaps the biggest punching bag of all for the longest time — is off 82 percent to $4.75 on Friday, with uncertainties growing about its core coupon business.
As it stands, some are predicting an even worse performance tomorrow and in the weeks ahead. Again, borrowing from the Bard: “The worst is not, so long as we can say, ‘This is the worst.’”
Now, the most pressing question for the three companys’ execs, employees and shareholders is when there might be some respite for the weary.
Unfortunately, most think that will be quite some time.
As the New York Times’ Peter Eavis put it well:
Indeed, each of the companies that have gone public in recent months has needed one main magical story … But the nightmare begins when investors stop believing in that central story. Earnings don’t have to be terrible, and they haven’t been at the hardest hit firms — Facebook, Groupon and Zynga, the online game company. The earnings just have to contain a few clues that the dream won’t be achieved. Then, the transition from extraordinary to ordinary is brutal.
In his analysis piece, Eavis made the obvious comparison to another Icarus from Web 1.0, which eventually found its wings again: Amazon.
As most know from digital history, the online retail giant was much pilloried throughout 2000, five years after it was founded, for being “Amazon.bomb.”
In June of that year, for example, its shares dropped 20 percent in one very bad day, on fears it would go bankrupt amid a spending spree and worrisome consumer buying trends.
The sell-off was prompted by an analyst from Lehman Brothers, Ravi Suria, who zeroed in on Amazon’s “weak balance sheet, poor working capital management, and massive negative operating cashflow — the financial characteristics that have driven innumerable retailers to disaster through history.”
Today, Lehman is the defunct one — with Amazon’s shares now trading lofty multiples of its projected earnings and a stock at a year-long high, which is up more than 700 percent since that horrible summer.
Business Insider’s Henry Blodget also made the inevitable Amazon comparison in a solid piece he wrote Friday specifically aimed at Facebook employees, noting:
Amazon’s stock, you will note, went straight up for three years, just like yours. Then it crashed, recovered a bit, and then traded sideways for about 5-7 years. Then, eventually, when Amazon’s obsessive (and admirable and rare) focus on customers instead of quarterly financial performance finally established it as a global ecommerce juggernaut, the stock price recovered all of its losses and began hitting new highs. This is what happens when companies focus on the long term. Their stocks go through fallow periods that last many, many years. But, eventually, if they execute on their vision, the stock follows through.
Facebook, as well as Zynga and Groupon, are now hoping that will happen for each of them. Or, even better, become more like Google and Apple, two other winners from older eras, whose shares are now soaring.
The stock of Apple, whose market valuation just passed an astonishing $600 billion on Friday, is at an all-time high at $648.11; and Google — now at $677.14 a share — is closing back in on its nearly $715 stock peak from 2007.
Of course, that outcome would be better than the other side of the Web 1.0 and Web 2.0 coins, settling into a downward slide suffered by such famous dot.com failures as Pets.com, Webvan and Myspace. While the situation at those companies was quite different from this troubled trio, they are still specters that hang around Silicon Valley haunting up the place.
Or, as the three witches from “Macbeth” put it best:
“Double, double toil and trouble; Fire burn and cauldron bubble … By the pricking of my thumbs, something wicked this way comes.”