Groupon IPO: Did investors get a deal or a dud?
Some relevant numbers in the wake of daily-deals purveyor Groupon Inc.’s initial public stock offering, which began trading on Friday:
--- Deal size: The Chicago company sold 35 million shares at $20 each, raising $700 million. It was the largest IPO for a U.S. Internet-related firm since Google Inc. raised $1.66 billion in August 2004.
But some foreign Net-related companies have raised more than Groupon recently. Russian search engine Yandex raised $1.3 billion in its IPO in May.
--- First-day pop: Groupon stock finished its first day of trading at $26.11, for a gain of nearly 31%. It traded as high as $31.14 shortly after the session opened as buyers rushed in. They should have waited: Within an hour of the peak price the stock fell as low as $25.90.
The first-day price gain was relatively modest compared with some other Net-related IPOs this year. LinkedIn surged 109% on its first day, Zillow jumped 79% and Yandex rose 55%. But another way to look at those gains is that the companies’ underwriters priced the shares too low in the IPOs.
--- Flippers: Did a lot of the buyers in the Groupon IPO immediately flip the stock? Looks that way: 49.8 million shares traded for the day on Nasdaq, or 142% of the shares offered. Of course, some shares undoubtedly changed hands multiple times during the session.
--- Market value: The company ended the day with a market value of $16.65 billion. That’s the value of the 35 million shares that were sold and the 600 million shares that are still in the hands of insiders and other early Groupon investors.
At $16.65 billion, three-year-old Groupon is worth more than a lot of established companies across the business spectrum, including semiconductor-equipment maker Applied Materials ($16.4 billion), grocer Whole Foods Market ($12.2 billion) and retailer Nordstrom ($10.7 billion).
Groupon is far smaller than Internet titans such as Google ($193 billion), Amazon.com ($98.4 billion) and EBay ($42.2 billion). But it has more than twice the valuation of LinkedIn ($7.9 billion) and about 14 times the valuation of online job-search firm Monster Worldwide ($1.2 billion).
--- Revenue and losses: Groupon’s quarterly sales have rocketed from just $4 million in the third quarter of 2009 to $420 million in the quarter just ended. But as investors hopefully know, Groupon still hasn’t turned a profit. (Read the company's prospectus here.)
In the first nine months of this year the company lost $215 million, or about 34 cents a share, on revenue of $1.1 billion. Groupon has to spend a lot to market itself to the merchants who use its daily-deals service. Marketing costs alone were $613 million in the first nine months.
--- When will profits come? As Karl Denninger writes on SeekingAlpha, that will depend on whether merchants keep coming back to Groupon. And the only way they’ll keep coming back is if their Groupon customers come back to pay full price rather than the deep-discount price.
Remember: The Net-based daily-deals idea that Groupon has popularized is a young concept. The revenue so far is huge, but that won’t help Groupon's stock if investors see little hope of achieving and sustaining strong profitability.
-- Tom Petruno
Photo: Groupon Chief Executive Andrew Mason (wearing the blue tie) jokes around with Groupon's largest shareholder and chairman, Eric Lefkofsky, outside the Nasdaq Market in New York, where the company's stock began trading on Friday. Credit: Brendan McDermid / Reuters