I'm absolutely unsurprised that the shares were sharply up on the open; IPOs over the past decade have mostly turned into government-sanctioned (or at least ignored) "pump-and-dump" operations. One of the things I've come to despite having moved to Silicon Valley is this absolutely infantile obsession with by-the-minute stock prices.
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.
Everything points that the stock will be trading in the teens in the near future. Their financials are a joke. Their costs to acquire users are astronomical (http://adage.com/article/digital/groupon-marketing-spending-...) and their accounting is shady at best.
While others don't know when it will be a good time to short it, even though they want to. If you get it wrong you can get burnt.
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.
I guess, but that is how private companies are valued every day. I sell you 5% for $1 million, we are both agreeing that the company is worth $20 million.
But Groupon is now a public company and what they've done isn't exactly normal (though LinkedIn did something similar...and of course yesterday the follow-on was announced):
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.
It isn't quite common, but many of the internet darlings did this same thing. I don't know why it is news all of a sudden. While GRPN has the smallest float, there were many other companies in the ballpark (P, LNKD, GOOG, etc). A more general rule of thumb for IPO's is 20-25%, but all of these guys had single digit values. It is fairly smart move on their part. They get a higher valuation due to demand and supply, and a long as all of the investors/employees don't flood the market with their shares, the early investors/employees win.
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%
Eh, ish. If the total supply of shares is 5% of the company, they'll be worth more individually than if the whole company was up for sale. That's just supply and demand at work. If you genuimely think that the company is worth 20 million and can buy 5% of it for 1 million and stop anyone else from doing so, that's a really good deal.
That is also how all public companies are valued. Only a fraction of shares are traded on any particular day, and that is what's used to determine the market cap.
If the offered number of shares are that low, maybe supply and demand mechanics are in play and that might result scarcity in the market and drive the price upward further in the coming days or even weeks. If they did offer that much less intentionally may be they will be able to sell other shares with higher prices slowly. What do you think, does this scenario make sense?
I haven't felt this strongly about shorting a stock long-term in a long time. But I don't know how long the short-term irrational exuberance is going to last - will it wipe out my investment before the stock crashes down?
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").
I've been burned by this before, especially by the margin requirements for a short-sale. It doesn't matter how confident you are a stock will crash, because if it keeps going up, eventually you will either need to sell at a big loss or add more money to keep up. And it's very tempting to short even more as it continues to go up, since you'll make even more when it crashes! And then you run out of money and are screwed.
In general, it's not a good idea to start from "this stock is priced illogically" and then apply logic to it.
In a couple weeks, options will be available on the stock and you can buy puts. The upside isn't as good but the downside is capped instead of unlimited.
Wait until the lockout period for the employee options expires, like in 6 months, then short it hard. Do it like 2 months beforehand because everyone else is thinking the same thing.
One rice university study says that 70% of health spa's , yoga studios and similar businesses see repeat customers. Since it doesn't cost a yoga studio to add a person to a lesson(up to a point), customer cheapness is less an issue and maybe daily deals are a new effective way to better scale certain kind of businesses.
Doesn't it concern you that Groupon works best for services that no one needs? I would say that in times of austerity, yoga, helicopter rides, health spas, parachuting, etc. are the first to go.
First, I agree that this is an insightful observation, and it certainly applies to conventional suppliers. For example, if demand for yoga classes drops, the demand for professional-grade yoga mats will drop.
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.
There's another factor though - in a down economy luxury goods and services tend to get squeezed. Prices will drop, margins will decrease.
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?
Makes sense when you’re selling bikes... a 50% off coupon only makes sense if your margins are 50% to begin with. But when you’re renting bikes, you have already sunk the cost of the bikes and are now looking to extract value from excess capacity. So the economics are different.
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.)
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.
It might be a fad on the day of the IPO, but if you break Groupon's business model down to its essential elements, it requires a huge number of leaps of faith to rationalize its competitive advantage and revenue potential. Goldman Sachs says they predict 40% growth year over year for the next two years. That sounds extremely fishy to me, given the already-dubious value of the service, the low technical and financial barriers to entry, the lack of loyalty from merchants and consumers alike, the allegations of crooked books, the early cash out for founders and investors, etc., etc. Too rich for my blood, I guess.
> haven't felt this strongly about shorting a stock long-term in a long time. But I don't know how long the short-term irrational exuberance is going to last - will it wipe out my investment before the stock crashes down?
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
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.
This is very unsurprising. The majority of IPOs are underpriced and in some ways the underpricing is a measure of success.
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.
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.
Right. The downside of underpricing is that it raises less cash for the company. This was the reasoning behind Google's adoption of the "dutch auction" approach to pricing their initial shares, although their value still spiked dramatically on release.
I would invest long term in groupon over my own dead body. $13 BILLION valuation for a company that took in $900 million+ and dumped 90% to founders while heavily in the red? Yeah, seems like a great investment.
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. ??
4. Profit
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. ???
My biggest issue with Groupon's IPO is not the stupid gambling that's going on, but the consequence that will have in other tech stocks and investment in tech companies in general.
I've been getting what seem to be Groupon-ish offers from both Amazon and Google. Basically discount deals for things in my area, "pay $10 for $20 worth of foo" kind of things.
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.
I don't know the exact rules, but it usually takes a couple weeks for the OCC to register the options with the CFTC. Then trading can begin. So, mid-Novemberish.
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.
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.