OpenX opens kimono to reveal financials – prepwork for an IPO?
It’s the season for getting a peek at private Internet companies’ financial results.
Wall Street is still chewing over Facebook’s recently revealed numbers, and on Monday, OpenX Technologies, a private, venture-backed online ad company, served up some financial gristle of its own.
The company, which provides an online ad exchange as well as ad server technology, said that it is now on track to generate more than $100 million in revenue on an annualized run rate basis and that it became profitable in the fourth quarter of 2011.
And it said it expects to profitable in 2012.
The move comes a few weeks after Facebook, the world’s No.1 Internet social network, pulled the curtain back on its financials for the first time, revealing $3.7 billion in 2011 revenue, with the release of the prospectus for its upcoming IPO.
OpenX CEO Tim Cadogan said the release of some of its financial results was not a sign that it planned to follow Facebook’s footsteps into the public market — at least not immediately.
“It’s premature to commit to it at this point, but it’s definitely something we’ve been thinking about,” he said of an IPO.
All about the Benjamins, or How Mark Zuckerberg cemented control of Facebook $100 at a time
One hundred dollars doesn’t go very far these days.
But for Facebook co-founder Mark Zuckerberg, a C-Note was the key to cementing his control over the social networking phenomenon.
As we learned last week when Facebook filed its prospectus for a $5 billion initial public offering, Zuckerberg has the voting rights to shares owned by some of Facebook’s biggest stakeholders, including venture capital firm Accel Partners, Digital Sky Technologies and former Facebook President Sean Parker.
In an amended filing on Wednesday, Facebook provided a little more color about the agreements that contributed to Zuck’s controversial control of 57 percent of the company’s voting shares.
Most intriguing was the price that Zuckerberg paid each of the various shareholders in exchange for handing him their voting rights: $100 in cash.
That’s not a typo.
One hundred bucks may seem like a pittance for such an important right. But it’s possible that the $100 payment was merely a formality, and that forfeiting voting rights to Zuckerberg was the real price of admission for (the raging horde of) investors seeking to buy into Facebook.
from Paul Smalera:
Facebook.coop
Facebook shouldn't pay its users. Its users should pay to own Facebook.
“Facebook was not originally created to be a company,” founder Mark Zuckerberg wrote in his letter to investors announcing the IPO of his already hugely successful and profitable company. “It was built to accomplish a social mission — to make the world more open and connected.”
Facebook has succeeded wildly, despite internal admonitions that its “journey” is only 1 percent finished. Journalists have latched onto Zuckerberg’s statement that Facebook wants to “rewire” the way the world works. In a world of thousands of self-anointed “social media experts,” only Zuckerberg can claim to have basically invented what the world thinks of as social media. He has etched himself into the timeline of human innovation.
Pity then, that Zuckerberg hasn’t turned his talents or attention toward Facebook’s financial underpinnings. After all, an IPO? How ho-hum can he get? If Mark really wants to accomplish his social mission with Facebook, he should share the company’s ownership with the people who helped him create it. Not just his Harvard contemporaries. Not just the programmers. Not even just the venture capitalists.
I’m talking about us. All of us. The users. Facebook should be a user-owned, user-managed company, run for the benefit of users. For the Facebook, by the Facebook. The company should be a cooperative.
Before I explain further, let me lay out the case in four simple points:
For what it’s worth, the largest co-operative in the world, The Co-operative Group, had £11.9 billion in revenue last year and has 6 million members.
Corporate co-dependence: when good partnerships go bad
One of the biggest surprises in Facebook’s IPO filing was that it depended on game-maker Zynga for 12 percent of its sales last year.
In 2010, the online game company famous for “FarmVille” and “Words With Friends” nearly declared war with the social network over a change in Facebook’s policy involving credits — the currency Zynga players use to buy virtual goods. Facebook wanted to take a 30 percent cut of transactions.
Bing Gordon, a video game veteran, Zynga board member and partner at Kleiner Perkins Caufield & Byers, described the standoff during the TechCrunch Disrupt conference in May as a Silicon Valley version of the Cuban Missile crisis, where Zynga was at one point prepared to walk away from Facebook.
Now that the importance of their relationship is out in the open, it is clear that it is the best interest of both companies to work together when it strikes a new agreement in 2015.
Zynga and Facebook are not the first mutually dependent companies which sometimes come to blows. Here’s a look at some famously antagonistic business pairings starring the likes of Microsoft and Intel, SAP and Oracle and Netflix and Hollywood.
(Click on the photo above for the slideshow)
Microsoft-Intel:
Facebook, is this the best you can do?
In the world of Internet IPOs, it doesn’t get bigger than this: Facebook, the world’s biggest social network, files for the biggest ever Internet IPO! On first glance, everything about it seems outsize: The company’s raising $5 billion! It made $3.7 billion in revenue last year! And $1 billion in net income! Even the stated mission — “to make the world more open and connected” — is impossibly expansive. It’s all so expectedly huge it’s almost bland.
Here’s the thing about the big, honking 187-page prospectus Facebook filed late Wednesday. Once you dig past those headline numbers, the company itself ends up looking pretty unremarkable — kind of like the lives portrayed in the typical Facebook timeline. You end up wondering if its best years aren’t already behind it.
Facebook’s revenue grew 69 percent in 2010. That’s down from 154 percent in 2009, but still not bad at all. It’s much better than the 29 percent growth rate Google saw last year, and close to the 68 percent growth rate for Apple. But those companies are much larger (Facebook’s 2011 revenue was less than 3 percent of Apple’s). And for Facebook, there are signs that its growth rate is already starting to slow dramatically.
In the first quarter of 2011, Facebook’s revenue grew 112 percent from the same quarter a year earlier. It also doubled in the second and third quarters. But in the fourth quarter, the growth rate slowed to 55 percent. And for advertising revenue, which makes up 85 percent of the company’s total revenue, the growth was even slower: 44 percent. Meanwhile, Facebook’s operating margin has declined over the past year, to 48 percent last quarter from 60 percent in late 2010.
What happened? One factor, according to the prospectus, is the “product changes that significantly increased the number of ads on many Facebook pages beginning in the fourth quarter of 2010.” By squeezing more ads onto its site, Facebook goosed revenue through 2011. But unless it can follow up with another plan to boost revenue, ad revenue growth could slow to 40 percent or less in 2012 — much closer to Google’s recent growth.
That provides an interesting comparison between Google’s IPO in August 2004 and Facebook’s IPO later this year. That comparison is inevitable, and many claim that Facebook’s IPO will “dwarf” Google’s, giving it a valuation five times as expensive. The doubters scoff. But they aren’t considering a simple fact: Facebook, which was as reluctant as Google to go public, managed to delay an IPO for years by winning an SEC exemption.
That means Facebook is going public at a more mature stage than Google did. Google was six years old when its stock debuted on Nasdaq; Facebook is eight years old. Two years may not seem like a long time, but for a growing Web company it’s significant. In August 2006, after two years in the public markets, Google’s market cap was $125 billion. From 2004 to 2006, its net profit rose from $400 million to more than $3 billion.
1) “… ad revenue growth could slow to 40 percent or less in 2012 — much closer to Google’s recent growth.”
Why is 40% growth and the concept that facebook might have matured be such a bad thing? 40% growth? The market compares this to two extraordinary examples (Apple and Google), and measures all else a failure if they do not compare. First, the idea that 40% growth for facebook is marginal is ridiculous. Second, the idea that facebook is mature is ridiculous. This is an example of a widespread attempt at analysis based on a spreadsheet.
But there’s a real world out there.
2) “Suddenly, the two biggest purveyors of online ads are hitting a speed bump. And it’s not entirely clear why.”
Well, the buyer’s of ads realize that facebook, and Google, have not only collected a lot of data about people that they use to sell ads, but they have also provided a lot of data about people that the buyer’s of ads can use for free. Make a facebook page, sell your product. Period. Why buy an ad? It’s free.
Countering this failure of the business model is the narrow-minded concept that facebook and Google cannot profit without selling ad space. That this is their sole opportunity and no other exists. They must sell ads or they will fail. This is the analysis of bean counters looking at spreadsheets that fail to recognize their environment is wrapped in a physical and very real world.
Foolishness. Idiocy. And I’m not a particular fan of either of these companies.
IPOverload: Facebook goes public
The least suspenseful waiting game in Silicon Valley is now over, thank heavens. Facebook, which began as a decidedly private Harvard hangout, has begun the process of going absolutely, totally, unabashedly public.
Facebook filed for an initial public offering with the SEC Wednesday, which means we have the first raw glimpse of its financials. Advertising makes up 85 percent of its $3.7 billion in annual revenue. And it took in $1 billion of income in 2011. For more of the best data points, see my colleague Anthony De Rosa’s rundown.
Facebook is synonymous with the Internet in many ways: It boasts more than 10 percent of the world’s population as active users and has realizable ambitions to be the preeminent vetting service on the Net, making a “Like” as powerful and capricious as Caesar’s opposable thumb.
Even if you aren’t a Facebook user (I am not anymore), its impact is inescapable. The world’s largest social network has, for better or worse, made TMI a laughably quaint notion, redefined friendship, and become, if not a verb (like Google), perhaps the most recognizable proper noun of the digital age.
All of which should mean, of course, that Facebook is the investment of a lifetime. And maybe it is — well, it certainly is for the insiders and early private investors who’ll be cashing in some of their chips, and for those lucky employees among the 3,000 who will be getting some new chips in the big game.
But for the rest of us, the story may not be quite the same. Popular brands often don’t quite line up with expectations. The dot-com bubble taught us that. Facebook’s IPO suggests that the backhanded Wall Street compliment, “priced for perfection,” was coined for this very company at this very time.
Lots of IPOs, just one Nasdaq bell
Nasdaq’s senior vice president of new listings and capital markets has some bad news for companies looking to hold an initial public offering: don’t expect to ring the opening bell.
The backlog of companies looking to list in the next few months is so big that “I’m going to disappoint a lot of people,” said Robert McCooey during an IPO panel at the Ernst & Young Strategic Growth conference. “Some people won’t even get a closing bell ceremony.” He counts 210 companies hoping to list on public markets.
It’s not just the successful IPO of Groupon last week that has changed sentiment. It’s the better — if not outright good — economic news in recent weeks, along with a solid earnings season, that is creating momentum, said David Erickson, co-head of equity capital markets at Barclays Capital. He said the firm was currently working with four companies that hoped to set IPO prices by Thanksgiving, in little more than two weeks’ time.
To hold a successful IPO that holds its value, companies should be certain they will follow up with strong quarterly earnings in the period immediately after the IPO. “You have to beat the first quarter out of the box,” he said. “If you blow up the first quarter out of the box, it takes you two quarters, three quarters, four quarters to rebuild that credibility.”
To capture the interest of the largest fund companies like FMR, companies should reach market capitalizations of at least $500 million, said Fidelity analyst Kristina Salen. Fidelity considers anything in the $500 million to $2 billion region small, she said.
The bigger the listing, the better the shot at that elusive bell-ringing slot. But there are fewer slots than you might think. Pricing a stock rarely happens on a Sunday or Monday night, McCooey said, essentially eliminating Monday and Tuesday opening bells.
The dreary details of Groupon’s future
By Kevin Kelleher The views expressed are his own.
Underwriting is usually a cheerless business. Taking a company public involves long regulatory filings, endless hours of due diligence and PowerPoint-driven roadshows. Investors need details, even if the details are dreary.
And then there’s the Groupon IPO. The daily deal company went public at $20 a share Friday and surged as high as 40%, briefly valuing the company at $20 billion. It may not be the hottest tech IPO so far this year — that distinction belongs to LinkedIn, which doubled its value on its first day — but it is the most discussed and divisive deal. Bulls and bears argue over the company and its future with a kind of passion that belongs to the culture wars.
On its face, the IPO is just about a company raising money, but it’s also so much more: It’s a spectacle — a dramatic tale of the fastest growing company in history brushing off a $6 billion bid by Google to go public and quickly become worth three times as much. It’s a scrappy outsider vindicating critics who attacked it mercilessly during an enforced quiet period. It’s a gaudy billboard luring other tech startups to come into the public markets.
What the Groupon story is missing, though, is all those dreary details. For all the metric-filled spreadsheets and PDF files of analysis, Wall Street is still a place driven by emotion. And the debate over Groupon is really about the difference between the emotional appeal of Groupon’s IPO and the less appealing story that lies in the minutiae.
A look at some of the details of the IPO itself suggest that this offering was carefully engineered to create a big splash. The prospectus lists 14 Wall Street firms, including Goldman Sachs and Morgan Stanley, the two biggest underwriters. These firms know that with a sluggish IPO market — only 18 companies went public in the third quarter, compared with 33 in the third quarter of 2010 — a big name IPO like Google or Amazon can whet the market’s appetite for more IPOs.
Groupon had been the biggest tech name in the IPO pipeline, but there were concerns this summer that investors’ interest might not be strong enough. So underwriters responded by ensuring that the supply of shares would be less than the demand. The result, according to Bloomberg, was the smallest float of any Internet IPO in the past decade: only 4.7% of its total shares. That raised $700 million for Groupon, less than the $900 million that Groupon insiders made from selling private shares in January.
Seviche doesn’t love Groupon anymore
Groupon’s IPO roadshow pitch is revving into high-gear this week. But CEO Andrew Mason and the rest of the crew might want to first convince its own clients of the company’s benefits.
Seviche, the merchant prominently featured in Groupon Inc’s now-trundling IPO roadshow, is no longer keen on jumping on the daily deals bandwagon. Worse, one of its general managers is mildly contesting Mason’s account of the benefits of their promotion run in 2010.
Hap Cohan, general manager of the Louisville, Kentucky-based restaurant, said on Tuesday the Groupon was in fact run by previous management (the restaurant brought in new investors over the past year). The new owners do not immediately see the benefits of a Groupon, at least not now.
Groupon launched its IPO marketing effort this week and the company posted a presentation by Mason and other executives online . Early in that presentation, Mason introduced Seviche along with a slide entitled “Why Seviche Loves Groupon.”
He said Groupon ran a daily deal for Seviche in February 2010, offering a $60 voucher for $25 to about 13,000 Groupon subscribers in the Louisville area and about 800 bought it. That deal generated roughly $20 of gross profit per customer, Mason said. And it didn’t include repeat business from the exposure, he added.
“That repeat business is what led Seviche a year later to add a new expansion to their restaurant that holds an additional 60 customers,” Mason said.
Seviche’s Hap begs to differ. He said the restaurant’s expansion was related to a real-estate change that his business made, including securing a new lease.
people that still do love Groupon haven’t done much research into their business practices & the damages they are doing to small businesses. it’s only a matter of time before this ponzi scheme burns.
Is Zynga’s lead slipping on Facebook?
Electronic Arts, the second-largest video game company in the U.S., is stealing market share away from Zynga, the top dog in social games on Facebook, according to a new report on gaming behavior.
The report, released on Wednesday, is based on data that tracks the game play of more than 10 million users of Raptr, a website that automatically tracks its users’ video game activity on Facebook, consoles and PCs.
“EA has stolen 10 to 25 percent playtime from Zynga’s top games,” the report said.
Since the launch of Sims Social, EA’s Facebook game that has more than 66 million monthly active users, Zynga games such as FarmVille, CityVille and Empires & Allies have all lost players, the report shows.
To be sure, Zynga still dwarfs EA’s users on Facebook by more than 2-1 according to the website AppData.
The report comes a day after Zynga unleashed a barrage of games upon its rivals and gave a sneak peek of a mysterious new platform called “Project Z” that could reduce its reliance on Facebook.
One of the key finding is that EA succeeded in bringing players of the Sims franchise to its Facebook game “but more impressively they were able to capture market share from Zynga.” EA can also tap games from PopCap, the company it bought over the summer, such as Plant vs. Zombies and Bejeweled 3 to start releasing more games on Facebook, it said.
I agree with most of Zyngas moves..I can’t wait to play Karma Kingdom on my Ipad.
