Groupon shares surge but concerns linger

NEW YORK/SAN FRANCISCO Fri Nov 4, 2011 5:43pm EDT

Groupon Chief Executive Andrew Mason poses with his fiancee, pop musician Jenny Gillespie, outside the Nasdaq Market following his company's IPO in New York, November 4, 2011.    REUTERS/Brendan McDermid

Groupon Chief Executive Andrew Mason poses with his fiancee, pop musician Jenny Gillespie, outside the Nasdaq Market following his company's IPO in New York, November 4, 2011.

Credit: Reuters/Brendan McDermid

NEW YORK/SAN FRANCISCO (Reuters) - The shares of daily deals site Groupon Inc rose as much as 56 percent in their stock market debut on Friday, with at least some of the exuberance the result of the small number of shares sold.

The shares rose as high as $31.14, or 55.7 percent above the IPO price, in early trading on the Nasdaq, at one point pushing the market value of the company to $19.9 billion. The shares later eased to close at $26.11, 31 percent above their $20 IPO price, giving the company a market value of about $16.7 billion.

Groupon had the third-highest trading volume on the Nasdaq on Friday, with nearly 50 million trades.

Groupon sells Internet coupons for everything from spa treatments to nose jobs and is one of this year's most closely watched IPOs.

The offering, one of the largest in recent years, may be a barometer of investor appetite for IPOs. A strong first few trading days could help other private Internet companies -- such as Angie's List, Zynga and even Facebook -- pursue their own IPOs.

There is a huge backlog of companies that filed to go public earlier this year. Most put their plans on hold when the stock market slumped in August. Groupon is the first major IPO since then.

Chief Executive Andrew Mason and Chairman Eric Lefkofsky hugged in Times Square after ringing the opening bell on the Nasdaq. Employees at company headquarters in Chicago donned lime green T-shirts emblazoned with the company's ticker symbol "GRPN" printed in old, ticker-tape-style lettering.

The company declined Reuters' requests for interviews. One employee in Chicago, who declined to give his name, said workers had been discouraged from speaking to the media. Several uniformed security guards walked the perimeter of the building, keeping an eye on Groupon workers who came outside on their cigarette breaks.

All of the shares sold in the IPO were new, which means early equity holders may sell a portion of their stake next spring, once the 6-month lock-up period expires. It also means that, for now, Andrew Mason's newly-minted $1.2 billion remains paper wealth.

Some analysts and investors warn that Groupon's early surge could be a short-term phenomenon and its shares could reverse course and trade down like those of Internet radio station Pandora Media Inc.

There are still lingering questions about Groupon's business model and about competition from better-funded rivals such as Amazon.com Inc and Google Inc.

Groupon has lost two chief operating officers in the past year and had to adjust its accounting twice under regulatory pressure.

"They wanted to have a decent pop on the stock so they didn't take that much public," said David Berman, a consumer technology and retail specialist at hedge fund firm Durban Capital. "They created demand by limiting supply, and they got the pop."

Michael Yoshikami head of money-management firm YCMNET Investment Committee, agreed.

"Much of this pop is based on low float. We continue to be concerned about Groupon's model, especially given the low barrier for entry into this space. But it's a familiar name and investors tend to gravitate to familiar names at first," he said.

On Thursday, Groupon upsized its IPO and sold 35 million shares for $20 each. But that stake amounts to only about 5 percent of the company.

The $700 million raised was on the larger side for a U.S. IPO, but the 5.5 percent represented the second-smallest share float in the United States in the past decade, according to capital markets data provider Ipreo.

Groupon was founded in October 2008 and has never been profitable. In the nine months ended September 30, it posted a net loss attributable to common stockholders of $308.1 million on revenue of $1.1 billion.

A spokeswoman for Deutsche Boerse AG's International Securities Exchange said it expects to list options on Groupon on November 14, with other major exchanges expected to follow suit. Options can be used to bet on the direction of stocks, including a decline. They are often used by traders to hedge stock positions.

Underwriters on the IPO were led by Morgan Stanley, Goldman Sachs and Credit Suisse.

(Reporting by Clare Baldwin, Brendan McDermid, Rodrigo Campos, Edward Krudy and Phil Wahba in New York, Alistair Barr in San Francisco and James Kelleher and Doris Frankel in Chicago; editing by Derek Caney, Gerald E. McCormick, Steve Orlofsky and Andre Grenon)

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Comments (17)
truthtorpedo wrote:
I refused their offer at my restaurant, its nothing but a scam.

they never bothered to vist my restaurant, just went by online reviews, and asked me outright what was the average meal ticket, offered to sell a 1000 of those meals, and split the profit in half and pay us back in 3 equal installments over a period of a year….haha!

Any restaurant that desperate to take their offer is either on its way down and has nothing to lose, or they have no business sense.

I said sorry, not interested and the lady on the other end could not believe I turned her down.

I told her, not only will i lose thousands which I can use for direct advertising in my neighbourhood, but that only dealseekers will take advantage of this and will not convert into regular buyers. People who are this thrifty will never be loyal to any brand. Why dont I give deals out on our website and keep the change? Why do I need groupon?

Nov 03, 2011 11:51pm EDT  --  Report as abuse
Darr247 wrote:
Grope one turning down Google’s $6 billion offer a few months ago, and now getting less than $1 billion from the IPO, has to rank higher on the ‘buy a clue’ scale than H. Ross Perot not cashing GM’s $750 million buyout check for a month because he kept thinking they would change their minds and give him his seat on the board again.

Back then (circa 1989), interest rates from banks were around 9%. So for the money he lost keeping that check in his pocket, he could have smoked ten $2000 cigars per day that month, lighting each one with a $100,000 bill.

Nov 03, 2011 12:33am EDT  --  Report as abuse
drxym wrote:
I have to wonder who these fools are who bought into this house of cards.

Nov 04, 2011 5:01am EDT  --  Report as abuse
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