The Next 5 Blockbuster Tech IPOs

There's more than Facebook worth waiting for

By Tom Taulli, InvestorPlace Writer & IPO Playbook Editor

In the past couple weeks, tech IPOs have suddenly become a red-hot topic.  It was a big surprise that LinkedIn (Nasdaq:LNKD) doubled on its first day of trading, which gave the company a market cap of $9 billion.  Then there was Yandex (NASDAQ:YNDX), which is called the” Google of Russia.”  Its now valued at about $11 billion.

So what will be the next hot IPOs?  There are certainly some solid prospects, which are likely to see hefty valuations.

Here’s a look:

Pandora:  This is an online music service based on a user’s listening preferences.  There are more than 90 million registered users, and, in fact, Pandora is adding a new user every second.

The system is based on the so-called Music Genome Project, which is a sophisticated database of music.  It has a group of musicians and musicologists that create a taxonomy that is based on 450 attributes.  The database has more than 800,000 songs and 80,000 artists.

Pandora has been aggressive with its distribution, such as by striking deals with consumer electronics companies and auto manufacturers.  But a key factor has been its Apple (NASDAQ:AAPL) iPhone app.

To make money, Pandora serves ads and also has a premium service (which provides for unlimited listening).  Last year, the company posted revenue of $137.8 million, up from $55.2 million.  

Twitter:  This is known as a microblogging application, and it has roughly 200 million users. It has become highly influential in media and has even become a tool to help spur political revolution, as seen in the peaceful Egyptian uprising. 

Despite all this, the long-term revenue opportunity is far from clear-cut.  Will a rapid-fire communications system be effective for advertisers to target their audiences? 

But this is likely to not be a near-term concern for investors.  After all, Twitter has a global brand and is still expected to generate revenue of about $160 million in 2011.  The current valuation is estimated to be roughly $6.2 billion.

Groupon:  The company provides daily deals via the Internet across over 500 cities.  Even though the company is about three years old, it is expected to reach about $2.5 billion in revenue this year and sport a valuation of roughly $25 billion. In addition, the company is highly profitable — it takes a 50% cut of the gross revenue for each deal.

True, Groupon has to deal with a slew of competitors.  Some include LivingSocial, which is backed by (Nasdaq:AMZN), Facebook and Google (NASDAQ:GOOG).  Yet Groupon has been able to maintain its competitive advantage. 

It helps that the company has raised more than $1 billion and has been rapidly capturing new markets.  Already, the company is in more than 46 countries. 

Zynga:  This is the largest operator of social games.  Users play these from either their smartphones or networks like Facebook. 

Often, there is little marketing required for a Zynga game.  The reason is that users will invite their friends to play – which means that it can easily go “viral.”  In fact, as a game gets large, Zynga can then cross-promote new ones into the massive user base.  

The company generates revenue from advertising and the sale of digital goods.  These include the purchase of in-game items, like picks, farm tools, weapons and so on.

Last year, Zynga posted revenue of $850 million and net income of $400 million.  The valuation is about $10 billion.  Keep in mind that the valuation of Electronic Arts (Nasdaq:ERTS) is about $8 billion. 

Facebook:  Simply put, this company’s IPO will be insane.  It will be a worldwide phenomenon. 

With about 700 million registered users, Facebook has become the Internet destination.  No doubt, this frightens incumbents like Google, Yahoo (Nasdaq:YHOO) and Microsoft (Nasdaq:MSFT). 

Granted, the revenue for Facebook seems small (the top line was about $2 billion last year).  But the company has been restrained in its monetization of the business  However, this is likely to change as the company begins to leverage its platform. 

As a testament to its importance, Goldman Sachs (NYSE:GS) invested in Facebook at a $50 billion valuation in January.  Now, the company is estimated to have a value of more than $85 billion.

Article printed from InvestorPlace Media,

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