Groupon Surges in Trading Debut After IPO Prices Above Range
Groupon Inc. advanced 31 percent in its trading debut as optimism about the company’s lead in the online-coupon market outweighed concern that ballooning costs and rising competition will drag on growth.
Shares of the Chicago-based company, listed under the symbol GRPN, climbed $6.11 to $26.11 at 4 p.m. New York time in Nasdaq Stock Market trading, after surging to as high as $31.14. Groupon raised $700 million selling 35 million shares at $20 each yesterday, the biggest IPO by a U.S. Internet company since Google Inc. (GOOG) first sold shares in 2004.
As the first daily-deal site to go public, Groupon offers a toehold in a market predicted by BIA/Kelsey to surge almost fivefold to $4.2 billion in 2015 from last year. Expectations for gains allayed concerns over Groupon’s lack of profitability and accelerating rivalry from Google and LivingSocial.
“They’ve got mind share and first-mover advantage,” said Erick Maronak, who helps oversee $2.5 billion as chief investment officer of New York-based Victory Capital Management Inc., which hasn’t ruled out buying Groupon stock in the future. “At some point down the line, if they actually succeed, there’ll be plenty of time to get in.”
Groupon also benefited from selling only 5.5 percent of its outstanding shares, fewer than are typically available to investors. Today’s trading gave Groupon a market capitalization of $16.7 billion, higher than the $11.4 billion the company sought in its offering.
The company had discussed an IPO valuation of as much as $25 billion with bankers, people said this year, and it rejected a buyout offer from Google in 2010 that would have valued it at $6 billion.
Groupon had initially offered 30 million shares for $16 to $18 apiece, or as much as $540 million. While the company said in its prospectus that it won’t need to use the proceeds from the IPO for at least a year and has no urgent cash needs, the company owed almost twice as much to merchants at the end of September as it held in cash. Marketing costs rose 37 percent in the latest quarter, four times as quickly as its cash pile.
The company is also facing competitive pressures. Amazon.com, Google and LivingSocial all offer group discounts and are giving more favorable terms to merchants, according to private-company researcher PrivCo. That’s led Groupon to accept lower margins to avoid losing business, PrivCo said.
Advisers to Groupon based the price range for the IPO on a projection that the company will have sales of about $2.1 billion next year, people familiar with the matter said last week. The $17 midpoint of its earlier range valued the company at $10.8 billion, or about 5 times that sales prediction, making Groupon more expensive than Amazon.com, the world’s largest online retailer, which traded at about 1.5 times estimated 2012 revenue yesterday.
Co-founders Andrew Mason, Bradley Keywell and Eric Lefkofsky will collectively own more than a third of Groupon’s common stock, according to the prospectus. They will also share more than 58 percent of the voting power by virtue of their Class B shares, which have 150 votes each. Class A stockholders get a single vote.
Groupon followed a sometimes rocky path to its IPO. Lefkofsky, the chairman, told Bloomberg News in June that he expected the company to be “wildly profitable,” a statement the company later asked investors to disregard in a regulatory filing. Company executives are forbidden from talking about financials during the so-called quiet period before an IPO.
In September, the company restated its revenue figures to exclude sales passed on to merchants, and it announced the departure of its second operating chief in six months. It had a net loss of $214.5 million for the first three quarters of 2011.
Groupon floated a record-low percentage of its total outstanding shares among U.S. Internet companies, helping to stoke demand. It sold less than in any U.S. Internet company IPO of more $200 million since at least 2000, Bloomberg data show.
Some investors said they’re shunning the stock on concerns about Groupon’s business model.
“For individual investors, it’s hard to justify buying,” said Jack Ablin, chief investment officer for Chicago-based Harris Private Bank, which oversees $60 billion. “You’re buying it at what arguably could be a very elevated valuation level.”
All of the shares in the offering were sold by Groupon, and net proceeds at the midpoint of the marketed range were estimated at $479 million.
Morgan Stanley, Goldman Sachs Group Inc. and Credit Suisse Group AG led the IPO.
Groupon has granted the underwriters a 30-day option to purchase up to an additional 5.25 million shares of Class A common stock to cover over-allotments, if any, the company said in a statement.