Groupon, the company that pioneered online group discounts, saw its stock soar more than 50% in its public debut Friday, showing strong demand for an Internet company whose business model is considered unsustainable by some analysts.
Groupon stock (GRPN) jumped more than $10 a share to almost $31 in early trading, which began about 10:45 a.m. ET.
Chicago-based Groupon sends out frequent emails to subscribers offering discount deals on anything from laser hair removal to weekend getaways. The company takes a cut of what people pay and gives the rest to the merchant.
Though it spawned many copycats after its 2008 launch, Groupon has the advantage of being first. This has meant brand recognition and investor demand, as evidenced by its sizzling public stock debut.
Groupon is selling 5.5% of its available shares. Though not unprecedented, that amount of publicly traded stock is below the so-called "float" for many prominent tech companies, such as Google and more recently LinkedIn.
On Thursday, the company priced its IPO at $20 a share. That was above its expected range of $16 to $18. The IPO valued Groupon at $13.3 billion and raised $700 million.
With Friday's stock price jump, Groupon's value rose to more than $18 billion.
Another Internet darling, professional networking service LinkedIn, saw its stock (LNKD) soar to $122.70 on its opening day in May after pricing at $45. Since then, the stock has settled lower but was still trading at almost $80 Friday.
Groupon's shares rose despite a decline in the broader market.
Investors were not surprised demand was so strong for the shares, despite months of skepticism over the company's financial prospects and accounting methods.
"It's a unique IPO," says Nick Einhorn of Renaissance Capital. "There's been a lot of controversy around it, but many people are interested in it."
- Questions about future profitability. Critics of Groupon suggest it's just a 2011 rerun of what happened with money-losing Internet companies of the late 1990s. Investors suffered huge losses as many of those dot-com firms' business models never worked and their stocks crashed, says Andrew Stoltmann of Stoltmann Law Offices.
Groupon lost $308.1 million during the nine months ended September, following a $456.3 million loss in 2010 and $6.9 million loss in 2009.
- Short-term focus of early buyers. If initial demand for Groupon's IPO is strong, that's mostly due to interest by individual investors who may be fans of the service or traders looking for a quick pop to sell into for a fast profit, says Francis Gaskins of IPOdesktop.com.
Moves in the stock also will be exaggerated in the short term because such a small slice of the company, roughly 5%, has been sold, Einhorn says.
- Ho-hum performance of recent Internet IPOs. There's no shortage of Internet companies that have had splashy IPOs only to see their stocks languish during the first few months of trading.
Active Network, a provider of online reservations for events, is down nearly 13% from its initial IPO price set in May. Demand Media, a provider of online content, is down 56% from its IPO in January.
The strong initial demand on shares of Groupon puts pressure on the company to defy the critics and perform, says John Fitzgibbon of IPOscoop. The initial IPO is "expected to go well," he says. "After that, the tape will tell the story."
by Associated Press Nov 4, 2011
Groupon shares leap more than 50%