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Article from NYTimes.

“With a huge initial public offering on the runway, Facebook has shown that it pays to have friends. New investors will now have to decide what they are willing to pay to be friends.

The giant social network said in a filing on Wednesday that it was seeking to raise up to $5 billion through its I.P.O. Many close to the company say that Facebook is aiming for a debut that would value it between $75 billion and $100 billion.

At the top end of the range, Facebook would be far bigger than many established American companies, including Amazon, Caterpillar, Kraft Foods, Goldman Sachs and Ford Motor. Only 26 companies in the Standard & Poor’s index of 500 stocks have a market value north of $100 billion.

Already, Facebook is a formidable moneymaker. The company, which mainly sells advertising and virtual goods, recorded revenue of $3.71 billion in 2011, an 88 percent increase from the previous year. According to its filing, Facebook posted a profit of $1 billion last year.

“Facebook will have more traffic than anyone else, and they’ll have more data than anyone else,” said Kevin Landis, the portfolio manager of Firsthand Technology Value Fund, which owns shares in the privately held company. “So, unless they are impervious to learning how to monetize that data, they should be the most valuable property on the Internet, eventually.”

A lofty valuation for Facebook would evoke the grandiose ambitions of the previous Internet boom in the late 1990s. Back then, dozens of unproven companies went public at sky-high valuations but later imploded.

Investors are eyeing the current generation of Internet companies with a healthy dose of skepticism. Zynga, the online gaming company, and Groupon, the daily deals site, have both struggled to stay above their I.P.O. prices since going public late last year.

“We’ve seen thousands of investors get burned before,” said Andrew Stoltmann, a securities lawyer in Chicago. “It’s a high risk game.”

The potential payoff is also huge.

Consider Google. After its first day of trading in 2004, the search engine giant had at a market value of $27.6 billion. Since then, the stock has jumped by about 580 percent, making Google worth nearly $190 billion today.

Facebook is still a small fraction of the size of rival Google. But many analysts believe Facebook’s fortunes will rapidly multiply as advertisers direct increasingly more capital to the Web’s social hive.

Mark Zuckerberg, founder and chief executive of Facebook.

Mark Zuckerberg, a founder of Facebook and its chief executive, even sounded like his Google counterparts in the beginning. In the filing, Mr. Zuckerberg trumpeted the company’s mission to “give everyone a voice and to help transform society for the future” — not unlike Google’s plan: “don’t be evil.”

Investors are often willing to pay up for faster growth. At a market value of $100 billion, Facebook would trade at 100 times last year’s earnings. That would make the stock significantly more expensive than Google, which is currently selling at 19.6 times profits.

Newly public companies with strong growth prospects often garner high multiples. At the end of 2004, the year of its I.P.O., Google was trading at 132 times its earnings.

But investors have less expensive options for fast-growing technology companies. Apple made nearly $1 billion a week in its latest quarter, roughly the same amount Facebook earned in all of 2011. At a recent price of $456, Apple is trading for roughly 16.5 times last year’s profits.

Investors now have to try to ignore the I.P.O. hype and soberly sift through the first batch of Facebook’s financial statements to gauge the company’s potential.

Online advertising is a prime indicator. At Facebook, display ads and the like accounted for $3.15 billion of revenue in 2011, roughly 85 percent of the total. With 845 million monthly active users, advertisers now feel that Facebook has to be part of any campaign they do.

“When you have an audience that large, it’s hard not to make a lot of money from it,” said Andrew Frank, an analyst at Gartner, an industry research firm.

For all the promise of Facebook, the company is still trying to figure out how to properly extract and leverage data, while keeping its system intact and not interfering with users’ experiences. On a per-user basis, Facebook makes a small sum, roughly $1 in profit.

The relationship with Zynga will be especially important. The online game company represented 12 percent of Facebook revenue last year, according to the filing. However, estimated daily active users of Zynga games on Facebook fell in the fourth quarter, from the third quarter, the brokerage firm Sterne Agee said in a recent research note — a trend that could weigh on the social networking company.

Facebook also faces intense competition for advertising dollars, something it acknowledges in the “risk factors” section of its I.P.O. filing. While advertisers will likely choose to be on both Facebook and Google, they will inevitably compare results they get from both. Some analysts think Google may have the edge in such a competition.

Google users tend to be looking for something specific. This makes it easier for advertisers to direct their ads at potential customers, analysts say. “Visually, Facebook ads are eye-catching, but in terms of accuracy of targeting, they are not even close to Google’s ads,” said Nate Elliott, an analyst at Forrester Research. “A lot of the companies we talk to are finding it very hard to succeed on Facebook.”

However, the high level of interaction on Facebook could prove valuable to advertisers. “At Facebook, you are looking at people’s interests, and what they are sharing,” said Gerry Graf, chief creative officer at Barton F. Graf 9000, an advertising agency in New York that has used Facebook for clients. If Facebook becomes a place where people recommend, share and buy a large share of their music and movies, such a business could generate large amounts of advertising revenue, as well as any user fees.

“Facebook has become the biggest distribution platform on the Web,” said Daniel Ek, the founder of Spotify, a service that accepts only Facebook users.”

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Article from NYTimes.

“On a recent Thursday night I stood motionless and perplexed on the dance floor of a San Francisco club. As I looked around, 300 or so people danced and darted back and forth to a free open bar while laser lights shot overhead. Cellphones glowed, like a video of luminescent jellyfish, as people snapped pictures and slung moments of the evening onto dozens of social networks.

What made the evening so perplexing was that the party I was attending celebrated Path, a mobile social network that just two months earlier was essentially written off in Silicon Valley. If the company held a party back then, people would have assumed it was a going-out-of-business sale. Now, after rebooting to positive reviews from the blogosphere, Path is again the talk of Silicon Valley. Some are even proclaiming that the company could be “the next Facebook.”

Watching the Valley’s perception of Path go from positive to negative and back has been like watching a hyperactive child with a yo-yo. The valuation has oscillated in near synchronicity.

This, I have learned, is the mentality of much of Silicon Valley, where decisions are not always made based on revenue or potential business models, but instead seem to be driven by a herd mentality and a yearning to be a part of a potential next big thing.

This is most evident in the valuations that are given to companies here. Two start-ups, each with 10 million users and no revenue, can be valued anywhere from $50 million to $1 billion.

Facebook is a prime example of this. The company does generate considerable revenue and is currently valued at $84 billion and is expected to reach $100 billion by the time of its initial public offering later this year. That’s a higher market valuation than Disney or Amazon.

Paul Kedrosky, an investor and entrepreneur, explained in an interview that one reason valuations are so wildly inflated is that venture capitalists want to be associated with a potentially successful start-up just so it looks good in their portfolio. This, he said, has driven absurd buying on the secondary private market, where stocks are bought and sold before a company goes public.

“There is massive buying on the secondary market by venture guys just for the showmanship of it,” he said. “These buyers are much less price sensitive and just want a company in their portfolio so they can stick the logo on their Web site.”

A report released last week by SecondMarket.com, such an online marketplace, said it had $558 million in transactions in 2011, up 55 percent from the year earlier. Almost two-thirds of those transactions were for consumer Web sites and social media start-ups.

Other investors give money to several companies hoping to strike it rich with at least one. I call that the Peter Thiel Effect. Mr. Thiel, a co-founder of PayPal, gave $100,000 to Mark Zuckerberg, a founder of Facebook, when the company was starting out. That investment is expected to be worth $1 billion when Facebook goes public.

In other instances, you have spite investing. This is when venture capitalists will give millions of dollars to a start-up simply because they were not given the opportunity to invest in the competitor with the original idea.

Some investors no longer even need to hear about a company to hand out money. Jakob Lodwick, an entrepreneur and co-founder of Vimeo, recently raised $2 million simply on the promise that he might have a good idea for a company in the near future.

It’s as if someone found out where Hasbro prints Monopoly money and gave every venture capitalist a key to the company’s storage facility.

“I have never seen such a generation of people shorting tech stocks,” Mr. Kedrosky said, noting that he too has chosen to bet that Groupon, Zynga and LinkedIn will fall significantly in value. “Usually the short community is more nervous about it, but there is a monolithic view that this generation of technology I.P.O.’s is completely broken.”

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Article fom GigaOm.

In today’s crowded world of e-commerce, it’s not easy to make a name for yourself. New niche sites pop up constantly, while big players such as Amazon are work to undercut the growing competition by spreading into new territories and offering low prices and lots of perks. Meanwhile, the brick-and-mortar retail giants game such as Walmart are getting savvy to e-commerceand investing more and more in building strong online operations.

That’s why it’s particularly impressive that Wayfair, a relatively little known e-commerce company that deals in home furnishings and decor, is set to make more than $500 million in top-line sales for 2011. I talked recently with Wayfair’s CEO Niraj Shah to get details on how the company quietly built a half-billion-dollar-per-year business, and where it plans to go from here.

Start small and widespread, consolidate later

Wayfair as it stands today was founded by Shah and his business partner Steve Conine nine years ago as CSN Stores. At its inception in August 2002, CSN operated a single website, racksandstands.com, which sold storage and home entertainment furniture. Gradually CSN expanded its holdings to include number of individual sites that sold other kinds of home and lifestyle goods, with domain names such as strollers.com and cookware.com. By 2010, CSN had slowly but surely grown to more than 600 employees, and its family of more than 200 websites was bringing in $380 million in annual sales. All this time, CSN had not taken a dime of institutional capital.

It wasn’t until 2011 that Shah and Conine decided to consolidate CSN’s operations under one brand name of Wayfair and take the business to the next level by raising outside funding. In June 2011 Spark Capital, Battery Ventures, Great Hill Partners and HarbourVest Partners pitched into a $165 million funding round. Wayfair now operates under three brands: Wayfair.com, which sells a variety of mid-range home goods; AllModern, which sells higher-end brands such as Alessi and Herman Miller; and Joss & Main, a flash sales site for designer home goods.

Beating out brick and mortar

The consolidation and rebranding is serving Wayfair well. The company now has nearly 1000 staff and a catalog of more than 4.5 million items from 5000 brands. Now it’s closing out its best year ever, with 2011 holiday season sales 30 percent higher than they were in 2010. Cyber Monday 2011 was the best single day of sales in the history of CSN/Wayfair, with an average order size of $143 per customer.

So what’s next? According to Shah, the company is looking at some pretty big players as its competition. And the most pressing competitors are more traditional physical retailers, not other online companies. “We were really focused on online competitors when we started, but over time as we’ve grown we’ve found that our competitors really include Walmart, Target, and folks like that,” Shah said. “We tend to win if someone is looking at our site along with another site. But if people just go directly to a brand they already recognize, like Target, then we may not get the chance to win that business.” That’s exactly why Wayfair has decided to focus on building up its own brand recognition right now, Shah says:

“Right now the home market is a little over half a trillion dollars in the United States, but only about 5 to 6 percent of that is online, and it’s a highly fragmented market within that. That’s all starting to really come online, so we want Wayfair to emerge as a household name. We want to seize the opportunity to be the go-to brand for home decor online.”

The road to an IPO

Ultimately, Shah says that Wayfair plans to return its shareholders’ $165 million investment with an eventual initial public offering. But he also noted that Wayfair’s investors are quite patient, especially seeing that the company was operating with comfortable profits well before outside money was brought in.

“In general for tech companies it seems to be a good time in the market to go public. But part of why we never took investment capital early on is that we didn’t want any time pressure regarding an exit,” Shah said. “If your business is going well you still try to time an IPO well, but it’s not like you’re going to miss a ‘window.’ We could see being publicly traded in five years’ time, but it’s not a big priority now.” In the near-term, he says, Wayfair’s focus is on international expansion and boosting its brand worldwide.

To me, it seems likely that Wayfair could become an attractive acquisition target for Amazon as it proceeds toward an IPO — Amazon has been known to snap up niche competitors with big price tags before, such as its $540 million acquisition of Diapers.com owner Quidsi. Whatever happens, Wayfair will certainly be a company to watch in the months ahead.

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Article from GigaOm.

Zynga has officially made its public market debut. The social gaming company’s stock began trading on the NASDAQ stock market at just after 11:00am Eastern Time (8:00am Pacific Time) on Friday morning with an opening price of $11.00, a significant bump up from its initial public offering price of $10.00.

Right out the gate, Zynga was not as much of a runaway success as other web stocks such as LinkedIn on its IPO day: Within the first ten minutes Zynga was on the market, its shares already dipped below the IPO price, reaching as low as $9.48.

But as we’ve written before, covering the ups and downs of a company’s stock price on its first day of trading is a bit of a horse race. It will take much more time to gauge Zynga’s success as a public company, and the idea of going public is to build toward longer-term sustainable operations.

Right now, the most salient fact is that Zynga is officially a public company and it has raised $1 billion in its IPO, the biggest Internet IPO since Google went public more than seven years ago. Founder and CEO Mark Pincus rang the NASDAQ opening bell on Friday morning remotely from Zynga’s San Francisco headquarters, accompanied by his wife Alison. The whole thing is a success in itself for the four-and-a-half year old company, and it’s likely that regardless of the stock’s first-day ups and downs, today will be a happy one for many of its founders, investors and employees.

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Article from NYTimes.

“Unable to break a three-day slide, shares of Groupon tumbled again on Wednesday, as more investors dumped shares.

For the first time since it went public earlier this month, Groupon broke below its offering price of $20 per share. Shares of Groupon fell 16 percent on Wednesday to close at $16.96.

The popular daily deals site had wrestled with intense scrutiny and volatile equity markets in the weeks leading up to its offering, but its debut was widely heralded as a strong performance. On its first day of trading, Groupon rose as much as 50 percent, before settling at $26.11 per share.

Wednesday’s drop is a disturbing signal for technology investors and other start-ups waiting to go public.

“Selling begets selling,” said Paul Bard, a director of research at Renaissance Capital, an I.P.O. advisory firm. “In the environment we’re in right now, investors are wary of risk, and so these less-seasoned companies will naturally face more selling pressure.”

Technology companies have largely outperformed other sectors in their debuts this year.  Shares of LinkedIn, for instance, doubled on their first day of trading, while Yandex, the Russian search engine, surged more than 55 percent on its debut.

But for many, the glitter has come off just as fast. Pandora, which went public in June, has dropped nearly a third from its offering price. Renren, often described as the Facebook of China, is about 74 percent below its offering price. Both Pandora and Renren tumbled again on Wednesday, with Pandora off roughly 11 percent and Renren down 6 percent.

According to data from Renaissance Capital, the technology sector has seen 41 I.P.O.’s this year, with an average first-day pop of 20.3 percent. Year-to-date, however, the group has lost about 13.1 percent in value.

The widespread pullback seems to suggest that investors, while eager to capitalize on first-day gains, do not have the confidence, or stomach, to hold on to the Web’s latest offerings. That apprehension is likely to be a major concern for high profile start-ups, like Zynga and Facebook, both of which are expected to go public in the coming months.

“When returns turn negative, that creates a problem for the I.P.O. market,” Mr. Bard said. “Because what’s the incentive to buy into the next I.P.O.? Bankers are now probably revisiting how many and which deals they will launch.”

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Article from GigaOM.

“Reports of the death of Groupon’s IPOplans have apparently been greatly exaggerated. The online daily deals pioneer filed an updated version of its S-1 document with the Securities and Exchange Commission on Friday, as part of its preparation for a planned initial public offering of its stock.

Since the company first filed its S-1 in June, Groupon has been roundly criticized for its seemingly shady accounting practices and that its early founders and investors have already cashed out billions of dollars worth of the company’s stock. CEO Andrew Mason was so irked by the negative press that he sent a long email to Groupon’s employees filled with talking points they could use to defend the company. Ironically, when that email was inevitably leaked to the press, it only attracted more criticism; the missive was seen as a violation of the SEC’s quiet period rules.

These issues coupled with the larger environment of economic unrest have fueled rumors that Groupon had put its stock market plans on ice. But Friday’s S-1 update — the third revision since June — shows that the company is still keen to go public. Despite Groupon’s swaggering reputation and Mason’s grumbling about haters, the company’s management is showing that underneath it all, it’s actually willing to make changes and respond to criticism. Specifically, the latest filing has a few notable tweaks: Groupon said it plans to scale back its marketing budget, reported that its revenue bookings were slightly higher in the second quarter of the year, and reprinted the full text of Mason’s leaked email.

More than anything, though, updating the S-1 shows that Groupon is still serious about making its stock market debut at some point soon. But ultimately, that will only happen if investors show that they have an appetite for the company’s shares.”

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Article from SFGate.

“Facebook has sold about $6.6 million worth of its shares to the investment fund GSV Capital Corp. as the company is believed to be preparing for an initial public offering next year.

GSV said Monday that it had purchased 225,000 shares in the world’s most popular social network at an average price of $29.28 per share. The investment makes up about 15 percent of the publicly traded fund’s total portfolio.

On its website, GSV describes itself as a way for its investors to access “dynamic and rapidly growing” companies ahead of their IPOs.

The investment fund did not say how large its stake in Facebook is, compared with the company’s overall ownership, and did not offer clues to the overall valuation of the social network.

A $500 million investment in the Palo Alto company by Goldman Sachs and Digital Sky Technologies in January valued the company at $50 billion, though some anticipate the IPO will push the company to a valuation of as much as $100 billion.”

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