Groupon shares open up 40%(techcrunch.com) |
Groupon shares open up 40%(techcrunch.com) |
Congrats to Groupon on their successful IPO; I still have very strong doubts that they have any means of building a successful, sustainable business. Time will tell better than my attempts at fortune-telling.
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Crickets.
With more Linkedin stock coming onto the market and the possibility of Facebook next year, things can get very interesting.
I like to buy and hold. I don't buy tech stocks. I work in IT. It might say something about having more blind confidence in predicting markets I understand less, or it might say something about tech stocks.
This reminds me of Jason Fried's prank that 37 Signals valuation tops $100B! http://37signals.com/svn/posts/1941-press-release-37signals-...
Groupon floated a record-low percentage of its total outstanding shares among U.S. Internet companies, helping to stoke demand. Only 4.7 percent of the stock was made available to the public, based on the offering terms. That’s less than in any U.S. Internet company IPO of more $200 million since at least 2000, Bloomberg data show.
http://www.bloomberg.com/news/2011-11-03/groupon-said-to-rai...
http://articles.businessinsider.com/2011-01-26/tech/30101467...
I haven't seen one pro-Groupon (or general daily deals) analyses that says anything different than "it gets people in the door and generates buzz" which I think is nothing more than fuzzy PR talk since you very rarely hear of businesses that actually received long-term boosts. You read about how businesses don't benefit because mostly cheap non-returning users use Groupon deals (i.e. very few return customers) and it cheapens the businesses' full price pricing power to those who know of the Groupon (i.e. "since X was a Groupon in the past, I won't go there until there is a Groupon again").
There has been a lot of research done on the topic of underpricing for book-built IPOs (like this one). The most popular conclusion I have seen is that it's a form of compensation for the underwriters and their clients. Underwriters pick their best clients who in exchange for doing business with the firm and revealing their "proprietary information," get access to IPOs that are very underpriced.
Raising money isn't the singular objective of an IPO. What the issuer wants is the creation of a liquid market for their shares, analysts to follow said market, and to be perceived as a successful company in order to enable follow-on offerings. Raising less money in order to enable these things, especially for the creation of a liquid market and analyst following is well worth it for the issuer.
Investors want to be compensated for their research and taking on risk. Underwriters allocate shares to their best customers in exchange for their information.
This comment isn't very clear or convincing. Jay Ritter from University of Florida has a lot more information and links on all of the above: http://bear.warrington.ufl.edu/ritter/ipodata.htm and http://bear.warrington.ufl.edu/ritter/ipolink.htm.
Basically, leaving no money on the table is much costlier than having the IPO underpriced by ~50%.
Groupon is an interesting IPO, not for how much it's stock rose but for the problems in its business model. A much better indicator of how well their IPO went will be the closing prices 1, 6, and 12 months form now.
1. IPO 50% lower then you guided 6 months ago 2. Float so few shares that you can push the value yourself with cash from previous financing round 3. Profit 4. ???
I never (that I'm aware of) asked for these offers, and it seems that if both Google and Amazon are actively pushing these out to their user base that Groupon is already borked.
In general, it's not a good idea to start from "this stock is priced illogically" and then apply logic to it.
I'd be more worried about the borrowing costs killing you.
Small float, check Hedgies got their pop and exit, check Lots of short interest, check
it's going to cost you dearly to short.
I haven't felt this strongly about a short in a long time, either.
Eventually you'll be able to buy put options, but you're going to pay a huge premium because of that float - there's a real risk the clearing firm will force your market-maker to buy stock, which has to be priced into the cost of the put.
Buying options is sort of like gambling on a sports team. When the sentiment's one-sided, the odds naturally get adjusted. You'll only make a bit of money shorting Groupon if you're right, but you'll still lose everything if you're wrong.
If you absolutely must do this, at least buy a put spread to hedge your risk at a bit.
http://www.sec.gov/Archives/edgar/data/1490281/0001047469110...
With such a small float, put-call parity isn't going to exist - the cost of borrowing the stock is going to make buying puts pretty pricey.
I feel sorry for the people who bought puts on LNKD, which also had a tiny float.
Recall Google: http://en.wikipedia.org/wiki/History_of_Google#Financing_and...
They floated 14m out of 271m total shares, and other stockholders added another 5m or so... so the total amount it IPO'd for was around 7% of the company but GOOG's share was roughly 5%
But a businesses like an advertising agency or coupon distributor is not a conventional supplier: It exists to create demand for things people don’t think they need. In times of austerity, it’s true that “organic” demand drops. But that can increase demand for businesses that create demand out of thin air.
When the class is full, nobody needs to distribute a coupon. But when the class is half-empty... Perhaps Groupon will get the call. Perhaps.
I am not endorsing Groupon, just trying to point out that since they aren’t a yoga business or a conventional supplier to a yoga business but a business that throws a lifeline to a yoga business, their economics may not exactly track yoga business economics.
What the Groupon model wants to do is throw a 50% discount on top of that. When times are good, margins on luxury services may be enough to let this slide as a marketing expense. What about when times are bad?
Or getting back to Yoga, it’s hard to offer 50% off your price for Lululemon clothes if you’re already discounting your prices to match the economy. But if you have a Yopga studio, your rent has already been paid. If you only have 10 people booked for a class that can hold 20, a coupon deal for ten more people may seem attractive.
Especially if Groupon fronted you the money for the attendees out of the capital they’re raised.
(Still not endorsing Groupon the company, just trying to be “fair and balanced” and make sure we’re looking at all of the factors in play.)
And yet Groupon obviously is doing alright.
Using your logic, shouldn't one be bullish on Groupon considering it'll make MORE money once the economy improves ? Using your logic of course....
My real problem with all this negative talk is that it's become a fad.
Groupon is gonna crash! It's a ponzi scheme! It's not worth anything!
Since so much sentiment is against Groupon, I tend to favor it more. Don't get me wrong, they've had a lot of problems, but it's definitely not the total disaster so many make it out to be.
Don't forget that contempt and fear are just as irrational as exuberance and greed.
Even if that were the case, not in the slightest. Massive businesses are built on items that you or someone do not perceive to be needed.
But Groupon also works in austere times both because people are looking for deals and businesses are looking for inexpensive or free marketing.