Bubble Time: Tiny Company, Barely Any Revenue, Expects To IPO

from the where-have-we-seen-this-before... dept

Remember back in the bubble years where startups that were barely a year old and had no revenue could go public at huge valuations? Maybe they really are coming back. We had thought that when Buy.com had postponed its IPO that maybe Wall Street hadn't returned to the bubble-era thinking of the dot com boom years. However, it looks like some companies are really pushing to bring back the insanity. Sean Ryan has a blog post up discussing a tiny startup named Digital Music Group that is trying to go public -- but which raises all sorts of questions about how the company could have possibly gotten as far as it has in the process. The company is in a highly competitive space (licensing music for digital downloads) where they're hardly the biggest player (they're way down the list, actually). It's also a bad business to be in: trying to be a middle man in a space where margins are tight and they're a prime target to get squeezed out. They're almost totally reliant on one channel: Apple's iTunes which accounts for about 80% of their "sales." Those, in general, should be warning signs, but the real kicker (and the reason "sales" is in quotation marks) is that the company isn't earning much money at all -- and yet wants a tremendous valuation. According to its latest filing it brought in about $235,000 in the third quarter (and lost well over a million dollars) -- but thinks it deserves a $270 million valuation. Yes, this is a company that has barely earned over $500,000 in its entire lifetime and thinks it's fairly valued at $270 million dollars. Ryan also notes that just four months ago the company valued its own stock at $0.01/share as opposed to the $8 to $10 per share it seems to be expecting at IPO. It's amazing that anyone at the company thinks they'll pull it off, and if they really do go public, it's a sure sign that some sort of bubble is back.


Reader Comments (rss)

(Flattened / Threaded)

  1.  
    identicon
    Vasco DaGameboy, Jan 5th, 2006 @ 4:21am

    Can you say Kozmo?

    The heady days of multi-million dollar IPOs for anything with a .com at the end were just a hair shy of a Ponzi scheme. The only people who got rich were the investment bankers who "let their clients in on the great opportunity," then used the incoming capital to line their pockets.

    This has all the earmarks of one of those, "Let's go public and get rich, then sell the company!" startups from the turn of the century. Anyone who puts their money here deserves to lose it.

    Is Stephan Paternot involved, by any chance?

     

    reply to this | link to this | view in thread ]

  2.  
    icon
    MadJo (profile), Jan 5th, 2006 @ 4:23am

    stupidity?

    it's a sure sign that some sort of bubble is back.


    Or that investers are just plain stupid

     

    reply to this | link to this | view in thread ]

  3.  
    identicon
    Mousky, Jan 5th, 2006 @ 4:31am

    Let the Market decide

    It is amusing to hear you harping about Bubble 2.0, Mike. In almost every other thread (patent, spectrum, etc) you are a strong advocate of letting the market decide what is best or acceptable. Shouldn't the market decide in this case as well? So some people get rich in the short-term. So what. this has been going on, well, since humans began to trade goods. You and others may not like, but someone in the market does. That is how the market works.

     

    reply to this | link to this | view in thread ]

  4.  
    identicon
    ?, Jan 5th, 2006 @ 4:49am

    Bubbles!

    I invested in some bubbles once. It was fun for a few hours, watching them float around, ooh, and the pretty colors too.

    Fortunately, I only spent a few cents on them. Unlike some who manage to loose millions.

    I wish I had millions to spend on bubbles...

     

    reply to this | link to this | view in thread ]

  5.  
    identicon
    ?, Jan 5th, 2006 @ 4:49am

    Bubbles!

    I invested in some bubbles once. It was fun for a few hours, watching them float around, ooh, and the pretty colors too.

    Fortunately, I only spent a few cents on them. Unlike some who manage to loose millions on their bubbles.

    I wish I had millions to spend on bubbles...

     

    reply to this | link to this | view in thread ]

  6.  
    identicon
    Denis, Jan 5th, 2006 @ 6:30am

    Re: Let the Market decide

    Bull. It would be fine if the market decided. But the last bubble was so hyped by the investment bankers and such because they were making side deals and ripping off small investors. IE. They say that the IPO will start at $10. They make a deal with big investment company XYZ to buy a bajillion shares and they'll lock the price down at $10 for them. Then everyone else will buy at much higher price because of the high demand ( a bajillion shares were purchased, must be hot). When the price is up, company XYZ dumps the stock and reaps profits. The original investment bank reaps all the fees. The company makes money (they have some shares still). The smaller investors (who bought at $10 + $X, lose that $X and more, since the stock tumbles probably below the opening price)

     

    reply to this | link to this | view in thread ]

  7.  
    identicon
    Jeremiah, Jan 5th, 2006 @ 7:54am

    longer tail than you think...

    Mike, if you take a look at some of their recent agreements, you'll see they're acquiring distro rights for specialty, foreign, reissue, and compilation labels.

    Here's an example of one of Carinco AG's products (one of the labels with an agreement with DMI). I think the term du-jour is "long tail", and I think there's certainly a demand for this material.

    Hasn't Techdirt waxed about finding your niche??

     

    reply to this | link to this | view in thread ]

  8.  
    identicon
    Anonymous Coward, Jan 5th, 2006 @ 9:07am

    No Subject Given

    Using the Capitalization of Earnings valuation method we can see that at the $250,000,000 price for the company, the owners think we should be happy with a 0.002% rate of return. Note to investors considering purchase of this stock: give me the money and I can GUARANTEE returns 10 times greater than that (by putting the dough in a savings account).

     

    reply to this | link to this | view in thread ]

  9.  
    identicon
    Human_Valuation, Jan 5th, 2006 @ 9:19am

    No Subject Given

    Quoting Sean Ryan is a sure sign that the bubble is back.

    Just like companies being overvalued during the Bubble, certain people were overvalued and he is definitely one of them. He should be a mid-level programmer at some no-name software company.

     

    reply to this | link to this | view in thread ]

  10.  
    identicon
    Anonymous Coward, Jan 5th, 2006 @ 9:21am

    I would rather invest in these bubbles

     

    reply to this | link to this | view in thread ]

  11.  
    icon
    Mike (profile), Jan 5th, 2006 @ 9:27am

    Re: Let the Market decide

    In almost every other thread (patent, spectrum, etc) you are a strong advocate of letting the market decide what is best or acceptable. Shouldn't the market decide in this case as well?

    Hmm. I think you're confusing what "the market" is. I'm all for letting the market decide, but part of letting the market decide is helping the market have as much information as possible. This post was designed to get more people to know some of the details about this company to let the market decide.

    Nowhere did I advocate having the government step in and stop this company from doing what it's doing, did I?

    The market certainly includes "marketing" and the ability for people on either side to spread information about any possible transaction so that people can make a better decision. That's all we were doing. Trying to provide more information so that people perhaps avoid making bad decisions based on bad information. That's still letting the market decide.

     

    reply to this | link to this | view in thread ]

  12.  
    icon
    Mike (profile), Jan 5th, 2006 @ 9:29am

    Re: longer tail than you think...

    Here's an example of one of Carinco AG's products (one of the labels with an agreement with DMI). I think the term du-jour is "long tail", and I think there's certainly a demand for this material.

    Hasn't Techdirt waxed about finding your niche??


    Er. I think you're confused about what my complaint is. I have no problem with a company finding a decent and profitable niche and raising money by going public. I'm just pointing out that (a) it's EXTREMELY early for this company to go public as they haven't proven anything and (b) the valuation is ludicrous.

    None of that disagrees with what you've said. I'd rather see the company prove itself. If it needs money, the private markets are the way to go for now, and it can go public later with a proven track record and a more reasonable valuation.

     

    reply to this | link to this | view in thread ]

  13.  
    identicon
    Don Gray, Jan 5th, 2006 @ 9:31am

    These...

    are the only bubbles I would invest in...
    http://www.zubbles.com

     

    reply to this | link to this | view in thread ]

  14.  
    icon
    jeff (profile), Jan 5th, 2006 @ 10:02am

    No Subject Given

    The guy who's running this show is a fundraiser, and I generally don't trust fundraisers. I don't think I'll buy in.

     

    reply to this | link to this | view in thread ]

  15.  
    identicon
    Mousky, Jan 5th, 2006 @ 11:34am

    Re: Let the Market decide

    Please. I'm not confused with what "the market" is. Did I ever say that you advocated the government step in? You sound a little touchy today? I'm just amused at your constant harping about Bubble 2.0. It's amusing, that's all.

     

    reply to this | link to this | view in thread ]

  16.  
    icon
    Mike (profile), Jan 5th, 2006 @ 11:58am

    Re: Let the Market decide

    I guess I just don't see what the connection is between talking about a bubble and advocating more open markets. It seemed you were implying that by discussing the bubble it was somehow the opposite of advocating more open markets -- which didn't make sense to me.

    Didn't mean to come across as touchy -- so sorry if I did.

     

    reply to this | link to this | view in thread ]

  17.  
    identicon
    Anonymous Coward, Jan 5th, 2006 @ 12:01pm

    From the profile of...


    Mitchell Koulouris

    Career disappointment
    Not being able to capitalize on the Dot.com boom.


    Looks like he's trying to get over that disappointment...

     

    reply to this | link to this | view in thread ]

  18.  
    identicon
    Ron, Mar 8th, 2006 @ 6:21am

    IP or patents on distribution methods?

    Anyway to determine if DMI/DMG/DMGI or whatever it's called today has any revenue sources from it's distribution system? Are they hosting the content and delivering it via some IP and protected technology? Licensing it to others?

    Note their Digital Onramp

    Thoughts? Looks like they also have some relation to the Tower Records group?

     

    reply to this | link to this | view in thread ]

  19.  
    identicon
    jacike, May 30th, 2009 @ 12:32am

    sad

    Steel and aluminum scaffolding for construction is a very useful tool. How's China printing industry developed this years, who can tell us? China based injection molding services with low costs and supeior quality

     

    reply to this | link to this | view in thread ]

  20.  
    identicon
    China Tent, Oct 9th, 2010 @ 12:15am

    Great!This article is creative,there are a lot of new idea,it gives me inspiration.I think I will also inspired by you and think about more new ideas.

     

    reply to this | link to this | view in thread ]


Add Your Comment

Have a Techdirt Account? Sign in now. Want one? Register here
Get Techdirt’s Daily Email
Save me a cookie
  • Note: A CRLF will be replaced by a break tag (<br>), all other allowable HTML will remain intact
  • Allowed HTML Tags: <b> <i> <a> <em> <br> <strong> <blockquote> <hr> <tt>
Follow Techdirt
A word from our sponsors...
Essential Reading
Techdirt Reading List
Techdirt Insider Chat
A word from our sponsors...
Recent Stories
A word from our sponsors...

Close

Email This