The Tech Bubble Just Popped
Groupon just closed down 35 percent from the start of the week and, for the first time ever, below its initial public offering price. Most other big, recent tech IPOs are underwater too. It's time to admit the tech bubble is burst.
The 41 tech companies that went public this year are down 13 percent collectively, according to the New York Times, and the biggest IPOs are no exceptions. Groupon, Pandora, Demand Media, Yandex and Renren are all below their offering price, with only LinkedIn in positive territory, up 53 percent. Before it went public earlier this month, Groupon looked like the big whale that might lift up all the middling tech stocks, especially after better than expected interest from investment banks. But the ostentatiously unprofitable online discounter was just meat for stock flippers, and the flippers have exhausted their supply of suckers willing to take the stock off their hands at a premium.
If you think the ramifications are limited to Groupon or newly minted tech stocks, you're nuts. "Wednesday's drop is a disturbing signal for technology investors and other start-ups waiting to go public," writes the Times. Indeed it is, as well as an ominous portent for unprofitable, undistinguished startups who have yet to "pivot" into the right business model and were hoping to raise more cash. More VC wallets will be closing, at least until Facebook goes public next year and maybe reinflates the bubble. Until then, a reprieve from the madness. A bit of reason and skepticism among investors is something we can be drink to this holiday weekend. Some of us, at least.