Before it went public, Groupon priced its stock at what turned out to be a highly conservative US$20 dollars per share. Ha! was the market’s response Friday morning, the day Groupon finally debuted on Nasdaq.
Trading immediately pushed the share price up to $27.96. The low of the day was $ 25.90 and the high, $31.13.
Roller Coaster Ride
It has been a roller-coaster couple of months for the company ever since it filed paperwork with the Securities and Exchange Commission to go public. Until that point, it was the tech industry’s darling, having identified and then created, along with LivingSocial, what is turning out to be a multibillion dollar daily-deal market.
It must have been a shock to Groupon then, when its first S-1 form was met with such derision. Accountants and stock analysts mocked its Adjusted Consolidated Segment Operating Income metric, which inflated the company’s worth by ignoring marketing costs. Groupon amended its filing, but by that point, the company could do no right.
Groupon did not respond to the E-Commerce Times’ request for comment by press time.
Successful Road Show, Stellar Opening
While hopes were high that Friday would be a good day for the company — based on the interest generated among investors during its road show of the last few weeks — few anticipated the price to hit $31.13, as it did for a short period of time. Or even $28.
“Those spikes were just mindboggling,” Lee Simmons, IPO industry specialist at Dun & Bradstreet, told the E-Commerce Times. “I expected that it would stay near the top range of what it had priced, but I didn’t think it would stretch to the limits that it did.”
In retrospect, it makes sense. Online music site Pandora had a strong opening day, he noted. “I think there is a significant amount of pent-up demand for tech stocks.”
Groupon’s opening day performance also illustrates that the market can be forgiving of many kinds of missteps, even before an IPO, if the stock is in high enough demand, said Simmons.
Groupon has proved that the daily-deal market is a viable one, he continued, “as well as being a specialized tech stock that people genuinely want to get their hands on. A lot of analysts think otherwise, but the general public thinks it is a good buy, at least today.”
A $20 Per Unit Company
It remains to be seen how forgiving the market will be if Groupon fails to maintain its share price levels.
“These price spikes are not sustainable in the long run,” Simmons said. “I think the company has a ton of work ahead of itself in proving itself to investors. So far, in every prospectus they have amended, they have indicated strongly they foresee no profit in the future — and they have conceded it is a market ripe for competition.”
With all that baggage, he concluded, it is difficult to imagine Groupon’s stock share will stay at Friday’s heights.
Groupon the Underdog?
It is also important not to underestimate the beating Groupon took in the months leading up to the IPO, Peter Krasilovsky, an analyst with BIA/Kelsey, told the E-Commerce Times.
“Groupon was getting bashed so much it eventually began to be viewed as a great investment opportunity because it seemed as though it would be undervalued,” he said.
Indeed, the entire daily-deal market got caught up in the backlash against Groupon. BuyWithMe traded at a fire sale price, Krasilovsky said, specifically because of the negativity surrounding Groupon.
“It has been difficult for other companies to raise money,” he said.
LivingSocial, the other major player in the daily-deal space, put in place contingency funding plans if it decided not to go public during this time period, he said — contingency plans that were probably shelved before noon on Friday.
“It remains to be seen if Groupon can maintain this price,” Krasilovsky concluded, “but this has been a good milestone for the daily deal industry.”