Sites Like Groupon and Facebook Disappoint Investors

The following is an excerpt from an article in 

The New York Times
Saturday, August 18, 2012

Sites Like Groupon and Facebook Disappoint Investors

By JAMES B. STEWART

With battered Facebook shares closing Friday at just over half their offering price in May, no one’s talking anymore about a social media “bubble.”

Just a year ago, social media seemed the next big thing. With dizzying user growth at Twitter, Zynga and especially Facebook, investors were euphoric about Internet sites that connected people with shared interests and experiences, seemingly the perfect media for targeted advertising.

The professional networking and job search site LinkedIn was first to test the public’s appetite when it went public in May 2011. Its shares more than doubled to close at $94.25 after trading as high as $122.70 that first day.

Early investors were understandably giddy, but others, like the former Treasury secretary Lawrence H. Summers, sounded a cautionary note. “Who could have imagined that the concern with respect to any American financial asset, just two years after the crisis, would be a bubble?” Mr. Summers asked at the time. Over the last year, Internet companies like Groupon, Zynga and Yelp made their public debuts. Facebook followed in May at $38 a share, instantly giving the newly minted public company a valuation of nearly $105 billion. Since then, euphoria has given way to mounting anxiety.

Facebook hasn’t closed above $38 since. The initial offering was widely deemed a debacle both for trading glitches and for the need for underwriters to prop up the stock.

The shares’ subsequent decline accelerated after the company’s first earnings report as a public company late last month dashed investors’ hopes for torrid growth.

This week was the end of the lockup period, which barred insiders from immediately selling their shares, and Facebook shares hit a new low, slumping to $19.05.

Other Internet companies have fared even worse.

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