Where are the Web 2.0 IPO’s?

Posted by Wayne on June 9, 2008 – 3:50 pm

It’s pretty clear that TickerHound, while certainly focused on finance, is first and foremost a web-based business.  Therefore, I tend to pay a lot of attention to the web startup scene.  I like to know what else is out there, what’s working, what isn’t, etc.

So when I saw this question on TickerHound the other day, my wheels began to turn right away:

Are there any publicly traded Web 2.0 companies?

For the most part the Web 2.0 “bubble” has been isolated to private transactions.  Meaning, we haven’t seen a serious tech bubble in the public equity markets like we did the last time around in the late 90’s.

There really hasn’t been much of an increase in the public markets at all.  If you look at where we were at the market peak in 2000 (Dow at 11,700 and the Nasdaq at 4,900) the Dow is pretty much even and the Nasdaq is still way off its high.  We haven’t seen any monstrous technology IPO’s since Google and there aren’t any gargantuan IPO’s on deck at the moment.

This might lead many to wonder what all the “Web 2.0 fuss” has been about?

Well, to be sure, there have been several high profile private and public transactions over the last few years that have certainly caused many investors to take notice.

For example, according to the National Venture Capital Association, 2007’s private equity and venture capital equity investments rose 10% from 2006 to reach $29.4 billion – the largest amount invested since the bubble popped in 2001.

And we’re seeing some serious activity in the public M&A markets as well:

• News Corp.’s (NYSE: NWS) $500+ million acquisition of MySpace
• Google’s (Nasdaq: GOOG) $1.6 billion acquisition of YouTube
• Yahoo!’s (Nasdaq: YHOO) has acquired multiple companies (Flickr, Del.icio.us, etc.)
• Time Warner’s (NYSE: TWX) $860 million acquisition of Bebo.com

Obviously some of these companies overpaid while some of them were probably great values.  MySpace’s $500 million buyout has already paid for itself due to a $900 million ad deal the company secured with Google.

So while these Web 2.0 companies eventually became part of larger, first-generation internet businesses, it’s clear that there has been some serious growth and profits being generated in this space for those that got in early.

But back to the original question, are there any publicly traded Web 2.0 companies?

Well, I think that question is slightly flawed.  It should be:

“Are there any publicly traded Web 2.0 companies AND are they worth investing in?”

The Answer:  Yes and No!

The pure play Web 2.0 companies out there are few and far between at the moment:

• Foldera, Inc. (FDRA.OB)
• VOIS, Inc. (VOIS.OB)

are probably the only 2 publicly traded stocks in the US that are pure play Web 2.0 companies.  However, you’ll note that neither company is traded on a major exchange.  You’ll also notice that neither company went through an actual public offering of its shares, or an IPO.

Both companies are the result of some crafty financial engineering known as a “reverse merger”.  This tactic is when a privately held company acquires a publicly held company and then merges itself into the existing publicly traded stock.

Typically, however, the publicly traded company isn’t much of a company at all, but more of a “shell” (as they’ve come to be known).  Meaning, the public stock has no real following, no real business to speak of behind it, etc.

There were a few Web 2.0 plays that were on deck to go public but have since been pulled.  United Online’s (Nasdaq: UNTD) Classmates.com spin-out was supposed to be a testing ground for web 2.0 IPO’s, but they pulled the plug on that one last year.

Another company, Synacor of Buffalo, NY, filed to go public last year but we haven’t heard much out of them either.

So the moral of the story is, while there might be a couple of publicly traded, small-cap Web 2.0 companies, I still don’t see any real investment opportunities there just yet.

If you’re looking for exposure to the sector your best bet is to follow the Google’s, Yahoo!’s and News Corp’s of the world.  But don’t think we’ve seen the last of technology IPO’s in this space.

In fact there are a few privately held companies that I’ve been watching for IPO announcements lately.

If Facebook or LinkedIn happen to go public, you could bet your bottom dollar that there would be TREMENDOUS demand for those shares.  Up until now, both companies have been closely held and limited to major institutions and Venture Capitalists for investment.  So be on the lookout, you still might have a chance to get in on Google-like profits again in the near future.