Dot-Bomb 2011, The Sequel

Recent IPOs and IPO filings are a scary indication that the financial markets did not really learn anything from last decade’s dot-com bust. 

First, let’s start with some facts: Groupon’s recent IPO filing shows that their 2010 Revenue was $713MM with a net loss of $217MM, not including the $203MM expenses due to acquisitions.  This was certainly a huge increase from 2009 when their revenue was only $30MM, and 2011 will probably blow 2010 out of the water; revenue through March 31, 2011 is already $645MM. 

Except for the losses, this definitely sound like a company poised for success. However, filing an IPO with a valuation of $20B is not only absurd, but is virtually criminal.  To borrow a quote from the article ‘Groupon's $20b valuation “irrational”,’ Sucharita Mulpuru, an analyst at Forrester Research, said, "It's just not a rational valuation.  It's not based on logic; it's based on whatever the highest bidder will pay for the company."

To compare this to a ‘real’ company: in February 2011, Sanofi  offered $20B for Genzyme, which is a company with revenue over $4B and a net income of over $400MM.  Real revenue; real profits.

I have no problem with the owners seeking $20B (they are geniuses if they get it), but I caution any investors who fall for the hype in these valuations and fuel the next crash ‘Dot-Bomb 2011, The Sequel’.