Employees and guests of Groupon, celebrate the company's IPO at Nasdaq, Friday, Nov. 4, 2011 in New York. CEO Little Andy Mason is center rear.
Groupon Inc. employees broke out the champagne on Friday as the Web company jumped 31% in its first day of trading as a public company. They weren't the only ones celebrating.
Silicon Valley and Wall Street took Groupon's stock market debut as a sign that investors are still willing to make risky bets on fast-growing but unprofitable young Internet companies, even as the initial-public-offering environment has shifted over the past few months due to stock market volatility. Groupon's IPO in particular is viewed as setting the tone for other highly anticipated tech IPOs like Zynga Inc. and Facebook Inc.
Groupon employees celebrated Friday the company's public-market debut at its Chicago headquarters.
Eric Jensen, a Silicon Valley-based securities attorney with law firm Cooley LLP said.
"It's a good sign for technology companies that the market seems to be receptive to a company that is high-risk, high reward."
Mr. Jensen represents social-gaming company Zynga, which filed to go public in July, but he wasn't speaking on the company's behalf.
Groupon shares rose from their IPO price of $20 by 40% in early trading, and ended at the 4 p.m. market close at $26.11, up 31%.
The closing price valued Groupon at $16.6 billion, making it more valuable than companies such as Adobe Systems Inc. and nearly the size of Yahoo Inc.
Groupon begins trading, but only with a small percentage of the company in play. The Reformed Broker's Josh Brown discusses the highly-anticipated new IPO, and whether the current environment is like the 90's tech bubble. Photo: Getty Images.
Groupon's Friday valuation is closer to the $15 billion to $20 billion that bankers had initially envisioned for the daily-deals company when it filed to go public in June, before the stock market stumbled and the company suffered setbacks in its management and accounting practices. As of its $20 IPO price, Groupon was valued at $12.8 billion.
Attention now shifts to Zynga, which has grown rapidly off the success of games like "FarmVille" and "MafiaWars." People familiar with the matter said Friday the company won't go public before Thanksgiving.
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In a regulatory filing, Zynga said its third-quarter earnings fell 54% to $12.5 million from $27.2 million a year earlier. Revenue rose 80% to $306.8 million.
At Groupon, employees celebrated the company's debut with cake and champagne in the Chicago headquarters. Staffers crowded around TVs to watch chief executive Little Andy Mason open the Nasdaq Stock Market. Many employees wore green t-shirts emblazoned with "GRPN" on the front and the date 11.4.11 on the back.
A spokesman said,
"Today's a significant step in Groupon's journey, but it's not the finish line."
WSJ's Rolfe Winkler joins the News Hub to discuss the Groupon IPO where it shares were priced at $20 each. Photo: Scott Olson/Getty Images
Groupon management played a big role in choosing which investors would get stock, according to one person familiar with the IPO. While more than 500 institutional investors got stock, the biggest allocations were concentrated among big mutual funds, and the top five or ten money managers got more than one million shares each, this person said.
Management wanted to focus allocations on long-term investors who appeared to understand the story in one-on-one meetings with Groupon executives during the nine-day roadshow., this person said.
At a size of up to $805 million, Groupon ranks as the third-largest Internet IPO sold in the U.S. this year, after a $1.4 billion issue by Russian search-engine operator Yandex NV in May and a $855 million issue by China social networking platform Renren Inc., according to Dealogic. It would be the ninth-largest ever on a list topped by the $1.9 billion sale by Google Inc. in 2004.
The IPO and Friday's market performance was also a win for four big-name mutual fund groups which invested $450 million in Groupon last December at a price which valued the company at just under $5 billion. They are:
- Growth Fund of America Inc.
- Fidelity Investments,
- T. Rowe Price Group Inc.
- Morgan Stanley Investment Management.
At the current price, those funds have more than tripled their money.
There are currently 132 IPOs on file that could be worth an estimated $23.1 billion, according to Dealogic, which tracks new issues. Aside from Zynga, other tech deals waiting in the wings are consumer-review service Angie's List Inc.
Max Wolf, chief economist at GreenCrest Capital Management LLC, which tracks companies before they go public, said Groupon, despite its flaws, shows investors are "excited about social media and social commerce but still have few ways" to make such investments. He added.
"There aren't many ways to express excitement about this space."
COMMENTARY: Little Andy Mason, CEO of Groupon has redeemed himself, at least for the first day of trading. Groupon's IPO price of $20.00 spiked 31% to end the day at $26.11, but that's well below the 109% spike that LinkedIn, the business social network, received in its opening day. LinkedIn opened at $45.00 per share, and closed at $94.25, and at one point during early trading hit $122.70 per share, before it began dropping.
I have been very critical of Groupon, as have many analysts, because I believe that it's business model is deeply flawed, merchant acquisition costs are very high, and growth in sales of Groupon deals has dropped precipitously since the end of 2010. Groupon has yet to report a profit since it was founded over two years ago and its future prospects remain questionable due to intense competition on many fronts.
This is what Henry Blodget writing for Business Insider says about Groupon's IPO:
"Right now, the big institutional investors who got the stock at $20 and swore up and down that they'd hold it forever are now gleefully flipping it to anyone who will buy it.
And if I were a big institutional investor, I'd be doing exactly the same thing.
There is NO WAY I would own Groupon's stock for the next few quarters at this price, given the business transition Groupon is currently undergoing.
At ~$30 a share, Groupon's valuation is about $20 billion. If the next few quarters are as rough as I think they might be, the stock could easily trade down to ~$8 billion, or ~$12 a share. That's a long way down from here.
Groupon's upside, meanwhile, appears to be limited, at least based on the company's fundamentals. Groupon is already being valued at a fifth of Amazon's value. It has already picked the low-hanging fruit in its key markets. It is cutting back on marketing costs, which is bringing growth to a screeching halt. Its core business in the US is shrinking. And Groupon is already totally global--there aren't many new markets to roll out in.
Could Groupon, say, double from here over the next 6 months and never trade below this level again?
Sure, it could. Anything's possible. But that doesn't seem likely. And, in any case, the risk/reward profile of 100% upside (25% probability) and ~75% downside just doesn't seem that compelling.
So, enjoy the ride, Groupon shareholders! I'll be watching the next act from the sidelines."
OUCH!! That's what I call a damnation of Groupon, not just the IPO.
On the opposite side of the coin, this is what Trent Tillman, writing for Seeking Alpha said about the Groupon IPO:
"In over a decade of following the IPO market, never before have I seen such negative press over a high profile deal. There have been hundreds if not thousands of articles written about the Groupon IPO (many of which just re-iterate the same information), and why this particular deal would be bad for investors. It is like the press is writing about Tim Tebow’s inevitable demise without any reference to the millions of Tebow worshippers (and yes I am Tebowing as I write this). Well, let’s keep the negatives aside and talk about the other side of the Groupon IPO and why it will work.
But before I go into the 5 reasons of why this IPO will work, let me first say that I am familiar (many times over) with all of the risks and arguments associated with the offering. I know that they had to restate their financials to appease the SEC. I know they have had two COOs leave in the last year. I know there are little to no barriers-to-entry and they face a lot of competition. And I know the company is not yet profitable. So please don’t send me all of the arguments that have already been stated many times over. I am here to tell you I know and I don’t care, because the IPO is going to work."
Trent ignores all the above red flags, then lists five reasons why the IPO will be a success. Yes, Trent, you were so right, but Tebow is still a very poor NFL quarterback, and equating him to Groupon was a mistake.
Courtesy of an article dated November 4, 2011 appearing in The Wall Street Journal
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