I'm a fan of IPOs, as long as companies are heading to Wall Street for the right reasons. If you're going public as an exit strategy or in a selfish move to cash out on top, I won't touch you -- even if I was holding play money. However, if you're a young company at the cusp of greatness, that's when I start drooling.
The valuations have to be realistic, of course. If an IPO is a ground-floor opportunity, you want to be able to arch your neck far back enough to visualize the penthouse above.
Since there are a lot of compelling companies jockeying for a possible IPO in the year ahead, I figured I'd be fashionably early by singing their praises before they start interviewing underwriters.
No, Facebook isn't really worth $15 billion. When Microsoft (Nasdaq: MSFT ) purchased a 1.6% stake for $240 million, it may have implied a value of $15 billion, but there's a reason why Mr. Softy was content to grab only a sliver of the fast-growing social networking site.
More than the investment, Microsoft was acquiring broader, global ad-serving rights throughout Facebook as part of the deal.
By the same token, Facebook is also worth more than the $1 billion that Yahoo! (Nasdaq: YHOO ) was apparently offering last year. Unless things change materially, Facebook's true value is somewhere in the middle. Appealing to a more mature crowd than the larger yet often juvenile MySpace, Facebook's audience is a marketer's dream.
Much smaller than Facebook, but perhaps even more attractive from the target audience's perspective, LinkedIn is a hub of networking adults that helps friends get connected professionally.
If Facebook goes public soon and takes off, there's no stopping LinkedIn cashing in on the opportunity. However, if greed and pride keep Facebook reaching so high that it prices itself out of an IPO, don't be surprised to see LinkedIn leapfrog Facebook and pull off a smaller market debut.
MarketWatch's Russ Britt recently wrote about Digital Domain's IPO desires. The company that creates special effects for Hollywood blockbusters like Titanic and Transformers is looking to go public in a few months.
Some feel that Digital Domain's market debut would be better left on the cutting room floor. The movie industry has struggled in recent years. DVD sales are stagnating after the initial run of celluloid buffs updated their libraries.
They're missing the bigger picture here, though; and I mean that literally and figuratively. This month's deal for IMAX (Nasdaq: IMAX ) to retrofit 100 different multiplex screens with the company's digital projectors that create larger-than-life cinematic experiences changes the rules. IMAX gravitates toward action blockbusters like this weekend's I Am Legend. You also have patrons upgrading to Blu-ray and HD-DVD players to make their flashy Hollywood epics more lifelike. No one cares about getting a romantic comedy on Blu-ray. No one is going to watch an artsy foreign flick on IMAX.
IMAX and the high-def disc players at home are built for eye candy -- and Digital Domain is in the sweet spot to provide it.
I've been enamored with Zillow since its launch nearly two years ago. At the time, it was an edgy though admittedly imperfect Web-based application for finding what your home was worth. It didn't seem like much, but it was a model so refreshing in the real estate industry that it dealt uppercuts to stodgy models like HouseValues (Nasdaq: SOLD ) .
Zillow was the brainchild of Expedia's (Nasdaq: EXPE ) founder, so it's really just a matter of time before the company follows suit and goes public. Even with dot-com realty plays like HouseValues and Realtor.com parent Move (Nadsaq: MOVE) trading in the mid-single digits, Zillow has enough Teflon to make it as an IPO. Its ad-supported model is appealing to customers, advertisers, and even a growing fleet of partners that now includes a consortium of local newspapers.
New and improved
Naturally, I don't expect all four companies to complete successful IPOs in 2008. Dynamic companies that redefine industries -- what David Gardner calls Rule Breakers, and seeks out in the newsletter service that bears the same name -- also become attractive buyout candidates on the way to an IPO.
Over the past two years, that has been the fate of speedsters on my potential IPO watch list, like video-sharing site YouTube, voice chat specialist Skype, Chinese online advertising star Allyes, and in-game advertising enable Massive. They decided to forgo the IPO lottery, opting for the sure thing under the wing of behemoths.
We'll lose some that way, but that won't make me any less excited about the prospects of digging into meaty financial filings from companies I've admired in the dark for too long.
IPO safely, my friends.