It's hardly the heyday of tech industry initial public offerings, but Groupon is reminding investors of what those days were like. Groupon took its stock to the public markets Friday morning and the IPO set a valuation that was the highest since Google.
Launched in November 2008, the Chicago-based Groupon is a deal-of-the-day Web site featuring geographically specific deals from local merchants. If a certain number of consumers sign up for an offer, then the deal becomes available to everyone. But if the minimum is not met, nobody gets the deal.
Groupon made an initial public offering of 35 million shares of Class A common stock at a price of $20 per share. That equals about 5.5 percent of the company. That is a smaller number of shares offered compared with traditional IPOs.
Despite the fact that Groupon has yet to turn a profit, its debut on the Nasdaq Friday morning had investors rushing to get in. The New York Times reported that the shares soared from $20 to $28 at open and pushed upward to more than $30 a share in early morning trading. That values Groupon at about $19 billion.
Groupon's Perfect Storm
"Groupon is trading well. It is surprising to me," said Zeus Kerravala, principal analyst at ZK Research. "I do think the limited number of shares drove the value up. That plus we haven't had a really exciting tech IPO in a long time. A number of forces came together to create a perfect storm effect for Groupon."
Groupon's success may encourage other tech darlings to go IPO. Business social-network LinkedIn made its debut on the public markets in May and also saw a warm reception. LinkedIn opened at $45 a share and quickly rose to $83 a share on the New York Stock Exchange. As opening day went on, the shares rose to $112, making the company worth more than $10 billion.
Game-app company Zynga could go IPO before the end of 2011. Social-network giant Facebook is holding out on going public. Many industry-watchers expect Facebook will go IPO in 2012 and estimate a valuation of $80 billion or more. Microsoft owns 1.6 percent of Facebook.
Groupon's IPO was helped along by Google in a roundabout way. Google offered $6 billion for Groupon in 2010. Kerravala said that offer legitimized Groupon's business model.
"I am not fully convinced that Groupon can sustain this market cap given the competition it is getting from Google and Facebook and others," Kerravala said. "The long-term value is going to be based on where they can expand into.
"They raised some cash. Now the question is, what are going to do with it? Are they going to go buy social-networking companies or what do they do to expand what they have and complement their offering?"
So far, the company has not outlined a plan for the flood of incoming cash. Groupon founder and CEO Andrew Mason called the IPO a small milestone on the company's journey and thanked co-founders Eric Lefkofsky and Brad Keywell, shareholders, employees, the board of directors, and customers and merchant partners.
"I feel incredibly grateful to serve as CEO of Groupon," Mason wrote in his blog. "With our IPO behind us, I couldn't be more excited about what lies ahead."