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.