What went wrong at Facebook, Groupon?

Two tech darlings are continuing their meteoric slide on Wall Street and a few others seem to be following suit, raising big questions about the almighty Internet IPO. As of August 23, Facebook was down nearly 50 percent from the IPO price. Zynga is down 68 percent. And Groupon? Tanking—down 77 percent from IPO price. So, what went wrong? Well, it’s not always good to draw blanket conclusions on differing companies, but they do have some things in common. Once the lock-up period ended for Facebook, several early investors dumped their stock, including Facebook director, Peter Thiel, who sold most of his stake in the company: 20.1 million shares. And, Facebook is reaching for all kinds of revenue, even tapping into the gambling market, in the U.K. at least. In early August, for the first time, Facebook began allowing real money—not just credits—to be used in gambling applications. “Real money gaming is a popular and well-regulated activity in the U.K. and we are allowing a partner to offer their games to adult users on the Facebook platform in a safe and controlled manner,” a spokesperson told TechCrunch.

Groupon has has similar post lock-up woes with big investors (including Marc Andreessen) dumping stock left and right. The main issue, it seems, is higher marketing costs because of slower customer growth and a dwindling profit margin on the sale of discounted goods. And then, there’s the issue of whether or not Groupon should have had its IPO in the first place. Om Malik writes on GigaOm, “I tried very hard to understand the company and figure out its technology edge. When I saw Groupon, I saw a company that was essentially using emails to conduct what was essentially a coupon-clipper business.” So, then, why was it valued at such high prices? Therein may lie the rub. In a piece about Facebook, the Washington Post’s Craig Timberg writes, “Part of the answer…lies in Wall Street’s skepticism of a founding principle of Silicon Valley’s business culture—that the best way to build a company is to ignore profits in favor of building a huge audience.” And Eric Jackson of Forbes writes that maybe companies such as Facebook, Zynga and Groupon just missed the right IPO window. He writes, “Going public forced these companies to be more accountable than they were beforehand.” Perhaps the bloom is off Silicon Valley’s rose (for now)?

• Groupon Investors Give Up (Wall Street Journal)

• Groupon not a tech company? Analysts are on the attack (CBS)

• Groupon is not a tech company, why was it valued like one? (GigaOm)

• Why Facebook, Zynga, and Groupon All Should Have IPO’ed Two Years Ago (Forbes)

• What Does Groupon’s Collapse Mean for Tech Stocks? How About: Nothing (The Atlantic)

• A look at tech companies with recent IPOs (AP)

• Groupon Shares Extend Plunge After Barclays Downgrade (BusinessWeek)

• Facebook Director Stock Sales Top $1 Billion as Lock-Up Ends (Bloomberg)

• Tech Stock Ebb and Flow: Apple Dominates Wall Street While Facebook Flails (PBS NewsHour)

• Biz Break: Apple’s rapid rise makes history, Facebook’s fast fall seemingly ends (San Jose Mercury News)

• Facebook stock decline shows Wall Street is wary of give-it-away-free approach (Washington Post)

• Facebook’s director in spotlight after cashing out (Reuters)