Despite criticism, Groupon soars in IPO

The daily-deals site bumped up its opening price to $20, but that still wasn't high enough for the market.

By Kim Peterson Nov 4, 2011 12:29PM

Updated: 4:55 p.m. ET

 

Say all you want about Groupon's (GRPN) questionable cash flow, issues with scale and encroaching competition. The market doesn't care.

The daily-deals site soared more than 40% past its initial public offering price of $20 Friday, and closed with a 30.6% gain at $26.11. That placed the company's valuation at about $12 billion to $13 billion. Not a bad figure, but nothing close to the $20 billion Groupon previously thought it was worth.

Post continues below.

Groupon seemed optimistic about the IPO, bumping up the pricing at the last minute from the initial range of $16 to $18.

But a stock's first day of trading doesn't say that much about its prospects. Plenty of investors were looking to sell shares on a fast turnaround, and no one knows what price the stock could end up at next week or next year.

"There are probably a lot of people looking to flip the stock, so it's hard to say where it's going to settle," analyst Nick Einhorn told MarketWatch. "The true test will be where it's trading several months from now, when the company reports results for subsequent quarters that will give some indication of whether growth is slowing or staying strong, expenses are staying in check or rising."

Also boosting demand was the relatively small number of shares available. Only 5.5% of Groupon's outstanding shares were offered to the public, The Wall Street Journal reported. That's one of the smallest floats in recent history, although bankers could choose to exercise an overallotment option that would open up another 4.5 million shares.

Groupon's performance Friday may help put to bed a number of controversies that dogged the company before the IPO. The company's unusual accounting practices were called into question, and some key executives departed. A leaked email from chief executive Andrew Mason may have violated the company's pre-IPO quiet period.

Groupon's business model is so easy to replicate that nearly 550 daily-deal competitors have sprung up in the United States, reports Inc.com. But scaling to expansionary levels requires a great deal of manpower and resources, which many of those rivals don't have.

Groupon likely raised about $700 million in its offering, which will help the company maintain its dominant position even as deep-pocketed rivals like Amazon (AMZN) and Google (GOOG) ramp up their deals businesses.
Tags: GRPN

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18Comments
Nov 4, 2011 2:10PM
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Google did offer these guys $6 billon and they turned it down... making you think "these guys are really motivated and passionate about their product, do they really think they have this market cornered?"  Not exactly, their tactics have been very unconventional in the venture capital startup world paying out $930 million to employees and investors; astoundingly, out of the $130 million it raised in one round, $120 million went to the founders' pockets.  Who takes almost all the cash in a company and pays themselves early... especially if their expecting huge growth?  Reminds me of Indian companies during the offshore boom 15 years ago.

Jim Cramer is right on this one... don't let a bunch of money manipulators market an IPO.  My grandparents are watching TV saying "look at that new Groupon company, that's some pretty cool stuff lets buy shares... my Grandson would be so happy to know we are investing in the future of American technology".   Technology my a$$, making money from nothing for some fortunate few will not take this country anywhere.  You may think there is something illegal about this... nah, taking money from the ignorant has never been illegal.  All this means is executives were in cahoots with their VC's, building a brand and marketing reputation while seemingly risking little in the process by pocketing most of injected cash and showing amazing trajectories for revenue and cash flow.  They're targeting the 99% while the 1% is watching with a grin on their faces because its reassuring to know how we got here... a little brains, research and one golden rule.

"There is no easy money!"

You could easily say, "Hey Groupon is amazing for me, it gives me 50% off my burger at the corner Deli... Americans are saving money!".  Wake up, most of Groupon's deals are discounting local mom and pops to a negative margin just so they can compete with large conglomerates, and hope to get repeat business.  The idea is great, but your just trading money around... there is no growth in that... there is no IP in that, you cant sell that to other countries.

Look at startup's that actually create something... ones built with integrity, conservative means and a long term strategy.  The best I can hope for in Groupon's scenario is that a few good Computer Engineers make millions on this IPO and go make some startup's of their own worth a damn.
Nov 4, 2011 2:36PM
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I have read a few articles on the Groupon as well as Living Social operations and they gear to local small businesses to convince them that by offering discounts on their product or service they will gain many new customers.  It has not worked out that way for the majority because people chase the coupon and do not return. On the surface it sounds great however in reality for most it is not worth the time nor money to try growing a business this way. 
Nov 4, 2011 2:42PM
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There truly is one sucker born every minute, some of them get together from time to time, party  and buy stock in worthless companies.
Nov 4, 2011 3:20PM
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Give it six months, or less, GRPN will be trading at $15.00.
Nov 4, 2011 4:55PM
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Groupon is not a smart investment but is a prime opportunity for savvy traders who exploit the system.

I read Groupon's SEC filing for this IPO.  I was amazed that they blatantly acknowledged that their current business model is practically unsustainable.  A few people will make a lot of money from this IPO, then there will be some serious profit taking or stock flipping.  Groupon's share price will dive just as fast as it rose.  Sooner or later Groupon's business model will be exhausted and Groupon will collapse.  I wish I were the first to see it but anyone with any business sense already sees it.
Nov 4, 2011 2:40PM
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Wow!  I've never seen an IPO high or skyrocket the first day, then when the average investor jumps on, tank...  Nope.  Didn't happen with Visa (V) and didn't happen with Dunkin Doughnuts (DNKN).  Na'h this market isn't manipulated. 
Nov 4, 2011 3:06PM
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It has not worked out that way for the majority because people chase the coupon and do not return. On the surface it sounds great however in reality for most it is not worth the time nor money to try growing a business this way. 

Exactly.

 

I think after the initial hype. You can buy PUT options on this all the way to 0. There is no way they are going to be able to grow the ad space (which is really what they want, they are an advertiser, collecting fees.....But guess who *OWNS* that space. Google. And Google is launching their own coupon and local business services)

Nov 4, 2011 4:18PM
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Give it six months, or less, GRPN will be trading at $15.00.

My money would be on less.

 

When they report their first earnings report sometime in January, I'd say all this stuff is no longer hidden from the mainstream community (currently it's not, they had to finally disclose for the first time last month, but of course, they didn't report as a public company yet, so the books don't get a lot of close looks yet)

Nov 4, 2011 4:32PM
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What is IPO?

Initial Public Offering.

 

Of course, the public generally can't get in on the deal unless you "know someone"...

Nov 4, 2011 3:51PM
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I can see these founders in an office right now...

"Wow I thought after all the crap the US has been going through we would see an average turn out.  Holy crap I underestimated how much risk most of us are open to, good thing we are rich enough now to leave this place when it heads south for the last time.  Haha, lets grab a beer and watch it happen.."

High fives all around guys!  Your lifeboat once again made money off a bunch of people trying to find a way to survive after the Titanic went down, goes to show you that we Americans are not ready to make the tough decisions to swim to shore and how easily we are distracted by the shiny object. 

Good luck and god bless to all of us...

Nov 4, 2011 3:22PM
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Wow!  We're really doing this again? 
Nov 4, 2011 3:13PM
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Visa is up 60% from it's IPO price.

 

I wasn't talking about 2-3 years, I'm talking about the short term.  And going from 57 to 65 is about a 15% gain.  Most stocks don't do that in an entire year.
Nov 4, 2011 4:18PM
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What does it say about expectations when the media considers an IPO going from 20 to 26 as SOARING. Give me a break, it's more like the Wright brothers first flight, okay but nothing to write home about.
Nov 4, 2011 4:15PM
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I wasn't talking about 2-3 years, I'm talking about the short term.  And going from 57 to 65 is about a 15% gain.  Most stocks don't do that in an entire year.

The average investor had plenty of time to make a decision as it went down with the whole market. Could have thought it over, got it at a discount.

 

VISAs story make sense, it's really not comparable to the Groupon IPO. Visa is worth it's current price and even more. Between Mastercard and Visa, Visa is bigger and has more market share. In a world that will eventually move to a completely electronic purchase model, Visa makes sense for the next 50 years.

 

Groupon is a whole entirely different matter. And there have also been plenty of IPOs that didnt' even pop this year. They got sold down on the first day from the start. Pandora and Lindken come to mind.

Nov 4, 2011 3:32PM
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Good call Kramer.........................not!


Nov 4, 2011 2:41PM
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Only an idiot will work with this company, they rob the merchants forcing them to lower their prices to publish a very attractive offers to consumers and they don't honored the coupons cause it's IMPOSSIBLE to sell services at the prices they want and keep 50% for themselves, a complete scam, a phone that no one answer and no customer services at all !!!!!.Federal consumer protection agencies should investigate!!!!
Nov 4, 2011 3:02PM
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Wow!  I've never seen an IPO high or skyrocket the first day, then when the average investor jumps on, tank...  Nope.  Didn't happen with Visa (V) and didn't happen with Dunkin Doughnuts (DNKN).  Na'h this market isn't manipulated. 

Visa is up 60% from it's IPO price.

 

It was priced around $57 at the opening, and now it's 93. The actual IPO day it only popped to 65. It ran to around 87 in the following month and a half. Of course, you have to consider, they IPOd in March 2008. And hit a double peak around June.

 

And that was because the broader market was under extreme pressure already, let alone what happened in August/Sept/October of that year. That stock was prime for a sell off due to the deleveraging of the market. People were going to book gains *anywhere* they could.

_________________

 

In terms of Groupon. I'd play this on the short after about 1-2 months of initial froth.

 

A) Groupon has a broken business model. They don't actually help the businesses who pay them. Groupon drives a ton of "revenue" to the businesses, but none is retained. People take advantage of the one time deals, and then never return.

 

The whole "sell point" of groupon to merchants is that they will increase their business. That's blatantly not true. Not only that, the businesses often lose out because the deals are so steep they make no margin on the customers driven to them.

 

B) The macro environment is pressured again this year. I don't think we will see deleveraging (like we did in 2008) but people are anxious to book profits. Gold has been stopped in its tracks after a good run this year, and the same is true for most performing stocks. People are locking in cash.

 

C) Bad accounting practices *already* 9 out of 10, bad accounting practices eventually reveal something fishy, and the stock gets nailed.

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