Zynga, the game developer behind smash hits FarmVille and CityVille, is the most profitable Web 2.0 company that has filed to go public this year. If this year’s track record with IPOs is any indication, Zynga’s IPO could easily crush every other Web 2.0 company once it makes its debut.
Just about every Web 2.0 company that has filed to go public is generating a massive amount of revenue. But it seems like investors have more of an appetite for companies that are generating a profit rather than a large amount of revenue. Only two companies thus far are generating a profit — business social network LinkedIn and Zynga. Cloud music station Pandora, group-buying site Groupon and Chinese social networking site Renren all filed to go public, but none of them are generating a profit. And neither Pandora nor Renren has had a wildly successful IPO (the jury’s still out on Groupon).
LinkedIn’s trading debut last month went extremely well, and the company now has a market cap of around $9 billion, well above the valuation of $4 billion it claimed when it priced the shares of its initial public offering between $42 and $45. The company’s shares are currently trading around $94.75 — more than double the IPO pricing. LinkedIn is profitable and reported that its first quarter revenue in 2011 was up 110 percent to $93.9 million over the same quarter a year earlier. Net income increased to $2.08 million in the first quarter of 2011, up from $1.81 million in the first quarter last year.
Pandora was the second high-profile Web 2.0 company going public this year that has failed to generate a positive income for the majority of its operating history. Shares were trading as high as $26 after the company made its debut on the NYSE on Wednesday. But that slowly tapered off throughout the day, and Pandora ended the day trading at $17.42 at the bell. The price fell by about 50 percent to close at $13.26 at the bell on its second day of trading. The company’s shares have since risen along with the rest of the market to around $20.50, just 28 percent higher than its IPO pricing of $16.
Renren has been the largest bust of the three Web 2.0 companies that have gone public this year so far. The company hit the ground running on its first day of trading, but investors had a reality check and immediately began selling off shares of the company. The company’s share price went from $18.01 to $13.49, or a drop of about 25 percent, in a week. It is currently trading at around $9.
Like Pandora, Renren has faced losses for consecutive quarters. The company lost around $64 million in 2010 and around $70 million in 2009 even though the company’s revenue grew 64 percent to $76.5 million, up from $46.7 million in 2009. The company jumped from a profit of around $8 million in the third quarter of 2010 to a loss of $34.2 million in the fourth quarter of 2010, and up from a loss of $10 million in the fourth quarter of 2009. Of the past 8 operating quarters, Renren has posted an eight-figure loss in five of them.
Groupon faces similar problems that Pandora and Renren face. Groupon has consistently lost money each quarter except for one — the first quarter of 2010, when it brought in an $8 million profit. Groupon lost $456.3 million in 2010 and $6.9 million in 2009. The company lost $146.5 million in the first quarter this year. It filed to go public earlier this month.
We’ll be exploring the most disruptive game technologies and business models at our third annual GamesBeat 2011conference, on July 12-13 at the Palace Hotel in San Francisco. It will focus on the disruptive trends in the mobile games market. GamesBeat is co-located with our MobileBeat 2011conference this year. To register, click on this link. Sponsors can message us at firstname.lastname@example.org. Our sponsors include Qualcomm, Flurry, Greystripe, Nexage, Tapjoy, Fun Mobility, TriNet, Zong, Spil Games and WildTangent.
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