Heavy Overhang From These IPOs

 | Apr 15, 2014 | 9:18 AM EDT
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Google (GOOG) has to buy TripAdvisor (TRIP). Facebook (FB) has to purchase Yelp (YELP). Amber Road (AMBR) needs to merge with Border Free (BRDR). Salesforce.com (CRM) has to acquire Workday (WDAY). Cornerstone OnDemand (CSOD) needs to buy Q2 Holdings (QTWO). Yahoo! (YHOO) needs to buy OpenTable (OPEN). Priceline (PCLN) has to buy AirBNB and HomeAway (AWAY). Zillow (Z) and Trulia (TRLA) need to merge. Veeva (VEEV) should have bought Castlight Health (CSLT). Amazon (AMZN) should have snared GrubHub (GRUB). Mcdonald's (MCD) should have nabbed Zoe's Kitchen (ZOES).

And none of these things are going to happen.

As I focus on all of these newly public companies and their recently debuted brethren, I don't think people recognize that so many of these names that hit the market shouldn't ever have hit the market if their businesses had been that good. They should have been purchased before they had come public.

The fact that this didn't happen is a sign that the real economy didn't value them as much as did the less-clued-in public markets. Adam Miller, the hard-charging CEO of Cornerstone OnDemand, and Workday CEO Aneel Bushri, didn't buy any of these payroll and human-resources cloud-based companies. The always-acquisitive Salesforce.com didn't see anything it wanted from this recent crop before they hit the market, either. This tells you that those companies simply aren't as good as these myriad positive analysts think they are.

Think about it: if Grubhub had had anything proprietary, wouldn't Amazon have made a move? McDonald's is so desperate for a natural food play, so how did it let Zoe's come public? What did it not learn about giving away Chipotle?

Worse, as the seasoned companies swoon, do you think there is any hope they will be bought by the big dogs? I like Yelp very much, and I know that big public companies were interested in the Yellow Pages of the Net before it came public. Google offered $500 million for it. Now Yelp, with shares priced at $61, is worth $4.3 billion -- well below where it had been when the stock was at the $101 peak. But will anyone buy it? Will Yelp combine with anyone? I don't think so.

TripAdvisor has come down huge from $109 to $79, but the company is still worth $11 billion. A year and a half ago Priceline paid $1.8 billion for Kayak, a TripAdvisor-like company, and it was one of the smartest acquisitions of the era. But TripAdvisor would be a gigantic deal, and one that I don't think anyone would want to do.

I think if the $3 billion Zillow would merge with the $1 billion Trulia, the online real estate store would be the No. 1 player pretty much forever. But I don't think it's going to happen, because Zillow wants to wipe out Trulia. I would have to believe that Google and Facebook now believe they can wipe out anyone in the space. Yahoo wants to buy up shares, and not make big acquisitions, so I don't see it coming in to acquire the consumer-based Internet companies, either.

The good, established companies' aversion to acquiring the newly public -- even as Facebook buys WhatsApp for $19 billion and as Google picks up a drone company -- should make us very concerned.

How did things get so out of hand? I think the Twitter (TWTR) deal truly wrecked the pricing model. You knew that no public company could afford Twitter before it came public, even as there was a time when Microsoft (MSFT) could have grabbed it for about one-tenth of the price where the stock currently trades. The Twitter deal made the bankers and the insiders giddy. They knew the public market would pay anything for some of these Net companies, well beyond reason. Ever since then, so many companies have become out of reach.

Until these go back down to where they make sense to be acquired, I think the overhang from these new companies is going to cause a real problem for the market. When will the smoke clear? Easy: when you see deals. Until then, the pricey companies will be easily shorted, and heavily sold, by insiders who know these prices should never have gotten to where they have gone, even as they have come down a great deal from their highs.

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