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Amid Tech IPO Boom, Not All Web IPOs Are Created Equal

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Not all internet IPOs are created equal.

A decade after the dot-com crash, sky-high internet company valuations are prompting a heated argument over whether the market is entering another tech bubble. But the “bubble vs. no-bubble” debate risks obscuring the need to evaluate each company on its own merits, rather than chase blindly after the next hot offering. While some company valuations are exhibiting bubble-like characteristics, especially those firms going public with little or no profits, other firms are demonstrating the kind of robust revenue and profit growth that justifies their high valuations.

With that in mind, here’s a comparison of six companies that have either gone public this year, or are expected to within the next 12 months:

Demand Media: The company runs a web registrar operation and a content business anchored by eHow, a massive repository of low-cost articles on virtually every subject imaginable. The company pays thousands of freelancers to produce articles it hopes will have a longer shelf-life than traditional news articles. Demand went public in January and saw its stock jump 33 percent.
IPO: January 16, 2011. Raised $67 million. Open: $17. Last close: $13.27.
Revenue: $253 million
Net Income (Loss): ($5.3 million)
Revenue growth: 48 percent
Valuation: $1.11 billion
P/E: N/A
Competitors: Yahoo (NSDQ: YHOO), AOL
Challenges: Demand is heavily dependent on Google (NSDQ: GOOG), which has been moving aggressively to crack down on low-quality content. As a result, Demand is focusing on increasing the quality of its content and growing its traffic from social media like Facebook.

LinkedIn: The social network for professionals has over 100 million users. Its shares soared as high as 109 percent in its first day of trading in May.
IPO: May 19, 2011. Raised $353 million. Open: $83. Last close: $90.66.
Revenue: $243 million
Net Income (Loss): $15 million
Revenue growth: 110 percent
Valuation: $8.57 billion
P/E: 1042
Competitors: Facebook, Monster
Challenges: LinkedIn (NYSE: LNKD) is growing rapidly, but needs to begin generating substantial profits in order to justify its sky-high valuation.

Pandora: The internet radio service went public at $20 two weeks ago, then dropped sharply, as early investors cashed out. Since then Pandora (NYSE: P) stock has moved back up toward the offering price.
IPO: June 15, 2011. Raised $235 million. Open: $20. Last close: $19.02
Revenue: $167 million
Net Income (Loss): ($17 million)
Revenue growth: 136 percent
Valuation: $3 billion
Competitors: Sirius (NSDQ: SIRI), Clear Channel (OTCBB: CCMO), Apple (NSDQ: AAPL), Google, Spotify
Challenges: Pandora faces crushing royalty payments due to the major record labels, and unless there are structural changes in the nature of those royalty agreements with the labels, half of Pandora’s revenues will continue to pour into label and rights-holder coffers.

Groupon: The Chicago-based daily deals service, filed IPO documents with the SEC last month. The company hopes to raise $750 million.
Revenue: $713 million (2010), $645 (2011 Q1)
Net Income (Loss)): ($413 million)
Revenue growth: 1,463 percent
Valuation (est): $15 billion to $25 billion
Competitors: LivingSocial, Google, Facebook
Challenges: Groupon’s biggest challenges are the low barriers to entry in its market — dozens of clones have sprung up — and an impending wave of competition from major players like Google and Facebook.

Zynga: The creator of popular online video games like FarmVille and MafiaWars filed IPO documents last week. The company aims to raise at least $1 billion, and as much as $2 billion.
Revenue: $597 million (2010), $235 million (2011 Q1)
Net Income (Loss): $91 million
Revenue growth: 135 percent
Valuation (est): $15 billion to $20 billion
P/E (est): >300
Competitors: Electronic Arts (NSDQ: ERTS), Activision
Challenges: Among the current crop of internet IPOs and IPO prospects, Zynga stands out for the simple reason that it is profitable, and substantially so. But Zynga shouldn’t become complacent. Ironically, Zynga’s rapid rise is illustrative of the fast-changing nature of the internet commerce. The company is on top now, but for how long?

Facebook: The world’s largest social network with over 600 million users is widely expected to public next year, and could raise $10 billion at a valuation of over $100 billion.
Revenue (est): $2 billion
Net Income (Loss) (est): $400 million
Revenue growth: Unknown
Valuation (est): $70 billion to $80 billion
P/E (est): 190
Competitors: Google
Challenges: Facebook is king of the social web. Google has thus far failed to make major inroads into the space, despite being the company best positioned to do so. It’s too early to know whether Google’s recently announced +1 service will dent Facebook.

Sources: Yahoo Finance, company filings, press reports. As of 7/5/11. Revenue and profit figures are for 2010 unless otherwise noted.