Skip to Content
Uncategorized

Why Groupon’s IPO Shouldn’t Erase Skepticism

Shares in the company soared on their first day of trading, but that has more to do with technical factors than the underlying prospects for the business.
November 4, 2011

After a bumpy ride to its initial public offering, Groupon saw its share price jump as much as 56 percent almost immediately after the stock made its debut this morning. On paper, everything might seem to have worked out all right: Groupon raised $700 million. That will give the daily-deals website a bigger cushion as it continues its expensive method of marketing itself to businesses and consumers. The IPO also makes Groupon founder Andrew Mason the latest billionaire in the TR35. With the surge in the stock price Friday morning, the company as a whole was valued at about $18 billion. That’s way higher than the $6 billion Google offered for Groupon last year.

But like a coupon you might buy from Groupon, there is some fine print that matters when you try to assess what Groupon’s IPO means for the company or other Web companies that soon could go public, including Zynga. For one thing, Groupon “floated” only a small percentage of the company—about 6 percent of its shares. That’s a very low supply. which means that the stock price can stay high even with moderate demand for the shares. Groupon clearly decided that it was better to hold back shares and thus raise less capital in the IPO than to risk having the abundant skepticism about the company’s business model drag down the stock price. That made Groupon even more conservative than LinkedIn and Pandora, which floated less than 10 percent of their shares when they went public this year. On average, companies float one-third of their shares in their IPOs.

There are advantages to being public, like how Groupon will now be able to use its stock as currency for making acquisitions and retaining employees. But by choosing to sell so few shares, Groupon might not have given itself as big of a financial cushion as it will need, considering how many competitors are swarming into its daily-discount game. Consider that in the first nine months of 2011, Groupon had $1.1 billion in revenue but lost a staggering $308 million, largely because it spent $613 million on marketing. Groupon had $244 million in cash on hand on Sept. 30, so the $700 million it raised in the IPO isn’t chump change. But how long can it last? As Groupon noted in its IPO prospectus: “We anticipate that our operating expenses will increase substantially in the foreseeable future.”

Selling its stock is kind of a side show. What Groupon really needs is to sell a lot more Groupons.

Keep Reading

Most Popular

Scientists are finding signals of long covid in blood. They could lead to new treatments.

Faults in a certain part of the immune system might be at the root of some long covid cases, new research suggests.

Large language models can do jaw-dropping things. But nobody knows exactly why.

And that's a problem. Figuring it out is one of the biggest scientific puzzles of our time and a crucial step towards controlling more powerful future models.

OpenAI teases an amazing new generative video model called Sora

The firm is sharing Sora with a small group of safety testers but the rest of us will have to wait to learn more.

Google’s Gemini is now in everything. Here’s how you can try it out.

Gmail, Docs, and more will now come with Gemini baked in. But Europeans will have to wait before they can download the app.

Stay connected

Illustration by Rose Wong

Get the latest updates from
MIT Technology Review

Discover special offers, top stories, upcoming events, and more.

Thank you for submitting your email!

Explore more newsletters

It looks like something went wrong.

We’re having trouble saving your preferences. Try refreshing this page and updating them one more time. If you continue to get this message, reach out to us at customer-service@technologyreview.com with a list of newsletters you’d like to receive.