Tech Week Ahead: What Went Wrong With Tech IPOs?

Host Audie Cornish looks ahead to the week's tech news with NPR's Steve Henn.

Copyright © 2012 NPR. For personal, noncommercial use only. See Terms of Use. For other uses, prior permission required.

MELISSA BLOCK, HOST:

From NPR News, this is ALL THINGS CONSIDERED. I'm Melissa Block.

AUDIE CORNISH, HOST:

And I'm Audie Cornish.

And it's time for All Tech Considered.

(SOUNDBITE OF MUSIC)

CORNISH: Not so long ago, Facebook, Zynga and Groupon were the most hyped companies planning to go public, but many investors' high hopes have been dashed.

NPR's tech correspondent Steve Henn joins us to talk about what went wrong for these companies. Welcome back, Steve.

STEVE HENN, BYLINE: Hi.

CORNISH: So what happened to Silicon Valley's money-making magic?

HENN: Well, you know, for investors who bought these companies' stock when they went public the past year, it's basically been a disaster. But if you compare Groupon, Facebook, and Zynga to some of the spectacular failures from the first Internet bubble, these firms are actually pretty different. All three still have sizable revenues and have had healthy profits, at least in the past.

But in all three cases, the expectations about how successful these companies could be got incredibly out of whack in the run up to their IPOs.

CORNISH: But what was driving the hype?

HENN: Well, part of is that today, even before a company goes public, their shares often trade on these little private markets. And because of that, we've seen are these pre-IPO bubbles inflate. You have small investors who get excited about companies and pour money into them, and their stock shoots up. That creates expectations about an IPO. But all of these expectations are built basically on guesswork. There's no public information on revenue or earnings for companies before they go public.

And so, in the case of Facebook and Groupon, their stocks actually hit record highs before their IPOs. In both cases, early backers sold big chunks of their stake. They cashed out, at least in part. Now, that doesn't mean that now Groupon and Facebook are doomed to fail, but it has been a pretty raw deal for lots of little investors.

CORNISH: That's NPR's tech correspondent Steve Henn. Thank you, Steve.

HENN: My pleasure.

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