It's happening again, the big losses on the big dot-coms. If I had hair, I'd be pulling it out, because I know I have clearly failed at my mission to get people not to buy at the red-hot aftermarket "deals."
The latest? Yelp (YELP). The stock flew right out of the chute last Friday and now it is plummeting, and those who bought in the aftermarket have no idea what they own or why they own it ... other than it was hot.
This is tragic, people. Tragic. You are just wasting your money if you buy deals like Yelp in the aftermarket. There's no earnings and no prospects of profits anytime soon. There is no way to value it, other than to say that it was once offered $500 million from a very smart acquirer, Google (GOOG), and now it is worth more than twice that in the public market with the buyout off the table.
What makes it worth $1.1 billion? Revenues? Pageviews? Certainly not earnings. It's all about the land grab and the desire to have first-mover advantage ... just like all those other issues I watched lose money in 1999 to 2001, when almost every single dot-com -- more than 300 -- went bust not long after their hot IPOs came along.
Now, I am not saying that Yelp's about to go bust. Not at all. It's a good company with a good service and an excellent chance of being able to monetize its reviews someday, and it has a crackerjack balance sheet -- it's here to stay.
Nor am I saying that the dot-coms are all horrible buys. Not at all. Zynga (ZNGA), a company with terrific products including games I play personally with my kids, had a terrific moment to buy the stock -- right after it broke the syndicate price, or where it came public. It's up nicely now.
Groupon (GRPN), which came public at $20, traded at $15 not long after and then zoomed to back to $20. But it traded at $26 on the aftermath of the IPO, and that was a total sucker's play as it plummeted 11 points almost immediately.
Or consider Homeaway (HOME), a terrific collection of websites for renting homes and booking rooms all over the world. It came public at $27 but almost immediately went to $45. It then began its sickening slide to under where it came public, as people who didn't understand the company or got caught up in the enthusiasm blew it out and took the loss.
Even the best ones can be trouble: Consider LinkedIn (LNKD), which was priced at $45, soared 83% and then traded up a tiny bit more but then came crashing back to $59, where it bottomed. At least that held the "print" price.
In each case only a little bit of the overall company's stock was sold to the public, which is how the pop got generated. In every case most people who wanted in on the IPO didn't get it, as the hot stock was reserved for the best clients and few others. So they took action in the aftermarkets -- foolish action that cost people money.
We are going to get many more of these deals over time. All I ask is that you not buy the pop. If you can get in on the deal, terrific. If you can wait for it to come down, I bless it. But buying the pop? That's a total mug's game, so please, please, knock it off, will you?