The last month has signaled the rebirth of the market for web IPOs. Facebook’s private offering set the tone, although the social networking company probably won’t go public for another year.
But investors eagerly snapped up shares of “content farm” king Demand Media Wednesday. Then on Thursday LinkedIn, the smaller, more professional social network, made its IPO intentions official.
One troubling sign, however, from these early offerings, is the lies the securities filings have revealed. The CEOs at both Demand Media and LinkedIn had proudly proclaimed to tech journalists the profits their companies had achieved. But the S-1 filings they had to make in order to IPO tell a very different tale.
In August of 2009, LinkedIn CEO Jeff Weiner told Business Insider that the company was “still profitable” and that ad sales were up 50% year over year. But in its IPO filings yesterday, LinkedIn revealed it actually lost $3.4 million in 2009.
Pre-IPO, Demand Media CEO Richard Rosenblatt was on record multiple times saying his company had always been profitable. The IPO filings revealed that in fact Demand Media’s losses were mounting, climbing from $14 million in 2008 to $22 million in 2009.
“I think that they (LinkedIn certainly) would argue that they ARE and have been profitable but for the heavy investment in infrastructure that they are making to build the even more incredible company that they hope they will be one day,” says Lawrence Lenihan, CEO of local VC First Mark Capital. “Unfortunately, that is not how the public markets work. This is the critical problem of American business –how can you invest for future gains without the present pains of the market valuing you less. This myopia will be our downfall unless we can create another structure that embraces that investment with trust and accountability of management for delivering those returns in the future.”
It’s a powerful reminder to journalists that a CEO’s claim of profitability isn’t worth much without the data to back it up. And for all the talk of how this tech bubble is different from the dot-com version, the first two offerings of 2011 show hot web properties with shaky financials are not a thing of the past.
bpopper [at] observer.com | @benpopper