Is The Blog Bubble Going To Hit Wall Street?

Wall Street

from the can't-be-right dept

If an online poker website with a questionable business model where the vast majority of its customers are probably breaking the law can go public at a ridiculous valuation, then perhaps we are reaching back into the ridiculous bubble years. And, what better type of company to pump up that bubble than a blogging company? Hopefully, something was just lost in the translation on this one, but the Blog Herald points out that a Chinese blog provider is hoping to go public in the US with a $1 billion valuation. There’s a lot that just doesn’t seem right about this story — so it would be nice to see what really happens. First, anyone can say they want to go public at a particular valuation — but actually doing so is a very different story. And, considering the two sources for the article are the company’s founder/CEO and its primary investor, you have to imagine they have the incentive to pump up the possibility of a huge deal. Still, almost none of the additional numbers provided make any sense. The article notes that the company raised a seed round of $500 million — which has to be a typo. If it’s true, it’s ridiculous. There’s no way any blogging software provider would ever need that much cash — and it’s hard to understand why anyone would ever seed a company with that much. To support the idea that this has to be at typo, the company says it’s about to raise a second round of $10 million. If the seed was $500 million and the next round is $10 million, you have to imagine that those new investors aren’t getting any noticeable amount of equity. Also, if the company actually does go public the $1 billion you have to wonder how much of a return any of the investors could see — as they already pumped half that in cash into the venture. The next problem with the numbers is they hype up how much money the company is making, shifting over to yuan instead of dollars to make it even more confusing. However, doing a quick currency conversion suggests that the company is making about $250,000/month, which might be a decent small business, but the company is going to need some hefty growth numbers to ever be worth a billion dollars. Finally, of course, there’s the general business model question. The company makes its money by putting ads on peoples’ blogs. Of course, there are a ton of blogging products out there that won’t put ads on the sites, or that will let people put their own ads on their own sites — allowing users to make money. So, even if this company makes some money, it’s hard to see how it’s sustainable.