Days Away From Zynga And Groupon IPO's?

by: Intelligent Speculator

Every time that I hear about upcoming tech IPO’s, I’m always a bit anxious for the one that I’m waiting for more than any other, the one that I’ve said to be the best investment opportunity out there; Facebook. Unfortunately, there is nothing to report on that front and Spring 2012 still seems like the most likely timing for the social network to go public. That being said, we might see two new public companies join our universe of stocks in the coming days as both Groupon (NASDAQ:GRPN) and Zynga (ZYNG) have officially filed, disclosed their tickers and expect to turn public within the next 30 days.

Groupon To Make Jump First

The New York Times has reported that three people with knowledge of the situation have confirmed that Groupon will turn public later this month at a valuation near $10 billion, much lower than the initially discussed $30 billion from a few months ago. Why such a decline? We have discussed a few of the concerns that we and other investors and regulators have voiced over Groupon, its business model and its accounting “tricks”. Because of the “quiet” period, we have not gotten much of an answer from CEO Andrew Mason regarding all of the allegations and there could very well be some logical explanations but I am personally going to be very cautious about trading this name for now, much as I have been about Demand Media (DMD), which is down nearly 80% from its high (April 6th 2011) after going public earlier this year.

(Click to enlarge)

Zynga Looks Much More Attractive

Very recently, we did a comparison of the valuations of Zynga compared to 2 leading gaming companies and while the stock does look a bit expensive and risky, I still think that the upside is very significant for Zynga and could very well imagine buying up some of the shares that will be released (it all depends on the price of course). How does it compare to other companies such as LinkedIn (LNKD), Pandora (NYSE:P). I’m stil unclear about LinkedIn which looks expensive but has incredible potential but I think it’s a no brainer when compared to Pandora.

The recently announced “Project Z”, should end up being a major positive for the company if it can diminish its reliance on partners such as Facebook. It will certainly be a long term project and could take some time to lift off but any business it can generate will be very important. Honestly, there isn’t much the company can lose by going this route.

One Key Thing To Remember

I have written a few times about the dangers of shorting high growth stocks. I can tell you right now that you would probably be crazy to start shorting either one of these companies, which will probably be highly motivated to generate big numbers. You would also likely be going against what are sure to be very excited investors buying into the “next big thing”… I can already imagine the headlines:

“Groupon, the 21st century merchant”


“Your only chance to invest in social gaming, a market predicted to triple within a few years is with Zynga”

Now the question goes back to you, do you intend to buy one or the other of these stocks when they turn public?