These IPOs leave a dark cloud over the market

Until these overpriced stocks come down enough to attract acquirers, they could cause real problems.

By Jim Cramer Apr 15, 2014 12:19PM

Google (GOOG) has to buy TripAdvisor (TRIP). Facebook (FB) has to purchase Yelp (YELP). Amber Road (AMBR) needs to merge with Border Free (BRDR). (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. logoAs 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 going public.

The fact that this didn't happen is a sign that the real economy didn't value them as much as the less-clued-in public markets did. 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 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.

Jim Cramer headshot

Jim Cramer's Action Alerts Plus: Check out this charitable trust portfolio for the stocks Cramer thinks could be winners. The portfolio is long FB and GOOG.

More from TheStreet

Apr 15, 2014 12:33PM
Remember when the Japanese bought Rockefeller Center and then Pebble Beach for like $1 billion.  As I remember it that was the signal for the end of that debacle as well.  I think Pebble was then sold for 40% of that initial investment.  And everywhere and everything is all about Advertising.  At some point we need new products and to reemphasize production and invention and back way off on advertising as it is so much about sentiment and information and so little about product development and introduction. Me thinks you are spot on today Jim.
Apr 15, 2014 1:07PM
if he knew anything he would still be operating a hedge fund.......since busting out he realised there is much more profit with no risk ,conning the gullible..........what slime
Jim should have added Marin Software (MRIN) to the list.   Seems like another dog.
Apr 15, 2014 12:44PM

 "the less-clued-in public markets did." 


Wow Bobo why don't you bite the foot that stomps your grapes.

Apr 15, 2014 2:13PM
First time I read you loud and clear, Jim. All pumped-up cardboard cut-out stocks need a major drop in prices.
Apr 15, 2014 12:39PM
There's a DOT COM 2.0 bubble fueled by mobile devices,, social networking and  web based advertising.  Trading online revenue and profits for those in brick and mortar only lasts so long.
Time to SELL SELL SELL people

The yen carry trades are all blowing up in everyone's faces as the yen gains value and stock markets around the world lose value. There is a lot more down risk out there.

Add in it is now economic war between the EU, Russia , USA and China and no asset class is safe.

In China alone there is an estimated $2 trillion of fake dollars in their shadow banks just waiting to wipe someone out not to mention the tens of trillions of dollars in the US and EU shadow banks.

Apr 15, 2014 1:11PM
But yet again Bobo Numnutz here is positive one day and negative the next ...note the times he posts his columns ...clearly he is waiting to see which way the wind is blowing and almost certainly has a number of different columns he can submit on any given day.

Remember this is the type of person that drove many people away from the relative safety of mutual funds as he cannot make money touting them.

This man is just a greedy bouchedag .....
Apr 15, 2014 2:26PM

Bundy could kick Reid's azz - Thumbs up

Reid is too chicken shlt to face him - Thumbs down

Apr 15, 2014 2:09PM
Hey Bobo ...look your nephew ABS is back to "cup" you again ....I guess with your negative spin today you look like even more of an idiot as the market turned positive !!

Btw did you pay for his surgery to have the 2 gerbils, 3 banana slugs and the toad removed from his rectum or perhaps he went with Obamacare !!!!

Either way we all send our greetings to barry in tel aviv and wish him well ...the doughnut cushion is on the mail.  (not male barry) ....
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