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Posted at 07:00 AM ET, 09/07/2011

The Groupon IPO’s delayed. Whither the social media bubble?


Groupon team members work at company headquarters in Chicago. (Tim Boyle - BLOOMBERG)

Groupon’s IPO has been delayed indefinitely, according to reports.

The news hit Silicon Valley with a thud. After all, while Groupon was deemed to be the follow-up to expectation-shattering LinkedIn and wildly successful Pandora, it was also coming at one of the worst periods in the global economy.

So, with Groupon extending its wait in the wings, has the social media bubble popped, been averted or merely been delayed?

Groupon is not alone when it comes to postponing a highly anticipated IPO in the wake of Wall Street’s tumultuous summer. On Aug. 29, it was reported that social media game-maker Zynga was likely to delay its IPO for similar reasons as Groupon: questions from the Securities and Exchange Commission (SEC) and the market downturn.

But Groupon has additional problems — problems that some argue are potentially of its own making. For example, a leaked memo from the CEO and co-founder to the staff highlighting how well the company is doing during the required “quiet period” is likely to complicate the IPO process — bubble or no bubble.

Washington Post columnist Vivek Wadhwa, in a Sept. 1 appearance on “Bloomberg West,” called Groupon CEO Andrew Mason’s e-mail to staff “childish” and said the company should delay its IPO rather than contribute to a growing social media bubble:

Watch:

This is not the first time Wadhwa has warned of a bubble. In June, he wrote that the public markets were merely the tip of the iceberg:

...the bubble in publicly traded Internet shares pales in comparison to a much larger bubble that has inflated in the private markets where companies and investors can buy and sell shares. This secondary markets bubble, which is well into the hundreds of billions of dollars, represents a danger to America’s leadership position in the technology sector and a serious threat to the culture of innovation that made Silicon Valley great. Worse still, secondary markets have the potential to generate fraud on an Enron-like scale.

In the secondary markets, LinkedIn was valued at $2.5 billion and, at closing on its first day of trading in May, hit a market cap of $9 billion. At the end of trading Tuesday, LinkedIn was valued at $7.62 billion. This comes after the markets went on a roller-coaster ride driven by Standard & Poor’s downgrade, the turmoil in Europe and stagnant U.S. unemployment numbers for the month of August. This leaves little-to-no oxygen for Groupon or Zynga — to say nothing of larger social media companies, such as Facebook.

For now, it appears the social media bubble hasn’t budged, but its stasis is dependent on how long Groupon and Zynga will wait before going public and what they’ll do during that time. And, as Wadhwa writes, there’s more to the bubble than the primary markets. But,we want to know your take:

— Has the social media bubble burst? Have we avoided it? Or has the recent IPO-delay announcement from Groupon merely delayed the inevitable?

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By  |  07:00 AM ET, 09/07/2011

Categories:  Business, Morning Read, Technology

 
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