The lost children of the Web 2.0 internet IPO surge are Groupon Inc. (NASDAQ: GRPN) and Zynga Inc. (NASDAQ: ZNGA) which never created strong business models. While each stock has fallen this year, the plunges are not over. Neither company recommends itself as turnaround. They have nothing to turn with.
Groupon’s online coupon business was over run, particularly by large retailers like Wal-Mart Stores Inc. (NYSE: WMT) which could do online coupon targeting on their own. Walmart was clever and rode on the back of Facebook Inc. (NASDAQ: FB) as a means of coupon distribution. To make matters worst, Amazon.com Inc. (NASDAQ: AMZN) used its extraordinary distribution power with local merchants to flank Groupon as it tried to hold the customer relationships with which it built its business.
The Amazon and Walmart problems for Groupon are old. Not so old is that quarter after quarter, Groupon has not been able to solves it problems. Based on its last quarter, Groupon is barely growing. Revenue for the period was $738 million up from $716 million in the same period a year ago. Groupon and the family of Web 2.0 internet IPOs of which it is a member are supposed to be showing high double digit revenue improvement. Otherwise, their businesses are failures, at least in the eyes of Wall St. Groupon has not been able to “reinvent” itself, which makes the pessimism about its prospects worse.
Groupon shares trade at $3.80, down from $12 two year ago. It still has a market cap of $2.5 billion, which is impossible to justify when it no longer has a business because of the pressure from much larger competitors.
Zynga’s problem is worse. Investors can claim it never had a business, beyond the games it could sell on Facebook. Once that relationship began to deteriorate, Zynga lost its claim to future success and became nothing more than an experiment with products looking for a means of distribution. Zynga’s shares trade at $2.46. down from just under $6 some 20 months ago. Its market cap is $2.3 billion, with no way to justify the amount based on sales and earnings. It’s revenue in the most recently reported quarter was $199 million up from $152 million in the same quarter a year ago. Daily average users of its games were 21 million; down 23% year-over-year , It has not been able to replace its original wildly successful product Farmville.
Groupon and Zynga barely have businesses any more. Future quarterly earnings will show that once more, and the shares will move toward penny stock levels