Groupon’s shares pop at IPO

 Last Friday Groupon had their initial public offering in New York. It was the largest internet IPO since Google’s IPO in 2004. Groupon’s share price increased 31% to close at $26.11 up from $20.00 at the opening bell.

During intraday trading, Groupon’s shares surged as high as 56% and reached $31.14 before settling lower. Groupon only allowed 5.5% (low float) of their shares to be available for trading. Groupon raised $ 700 million, selling 35 million at $20.00 per share.

Groupon’s IPO value at opening bell was 12.7 billion and closed at 14.7 billion with the 31% increase. Groupon’s IPO valuation was expecting a valuation of 5 x earnings projected sales for 2012.

Launched in November 2008, Groupon has expanded to 48 countries and features a daily deal to customers in local markets.

Groupon’s business offerings appeal to online customers searching for a large discount to use their products and services in the local market. The businesses that offer Groupon’s coupons vary from clothing stores, spas, amusement parks, and restaurants. They tend to be smaller businesses that are seeking to become established by increasing their exposure to their customer base while avoiding large advertising and marketing expenses that often drain profit margins.

Groupon’s business offerings appear in large group coupon offerings, hence the name Groupon, that becomes active when enough customers sign up for the same offer that Groupon sends to their customers through e-mail in local markets.

Groupon’s businesses tend to be mostly retail oriented and typically don’t make money from offering bulk coupons. However, these businesses anticipate that Groupon’s new customers will like their products, tell a friend, and return to their store to become a full paying customer.

Groupon is an industry leader in a market where the barriers to entry are low and  competition is heating up.

Amazon has recently started offering daily deals through Amazon Local in June while working closely with Living Social, another discounted coupon site where Amazon has already invested $175 million in the company.

In recent months, Google has started offering discounted online deals through Google Offers.

Groupon has 7,000 employees in over 40 countries. The company has not become profitable thus far and they have been rapidly expanding their marketing budget. Since September 30th, Groupon posted a loss of $308.1 million on revenues of 1.1. billion. Fifty percent of their revenues were spent on marketing expenses.

Last year, Google reportedly offered 5 billion for Groupon which was rejected by Groupon’s CEO Andrew Mason.

 

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