Investing Insights: Is LinkedIn Just a Wanna Be Momo Stock?
In the biggest IPO by a U.S. Internet company since Google (NASDAQ:GOOG) raised $1.9 billion in 2004, the online-coupon provider sold 35 million shares at $20 each. Groupon had offered 30 million shares for $16 to $18 each, which would have raised as much as $540 million.
Groupon’s (NASDAQ:GRPN) IPO attracted a lot of investor interest despite internal missteps, unprofitability, and an intial offering price that many considered to be too high. However, the size and price were designed to benefit from a surge in first-day buying.
“This is as much of a marketing event tonight and tomorrow as a financing event,” said Sam Hamadeh, chief executive officer of New York researcher PrivCo, after the pricing late yesterday. “Engineering a pop for Friday is positive buzz which the company needs.”
In its prospectus, Groupon said it won’t need to use the proceeds of the IPO for at least a year and has no urgent cash needs. However, the company owed almost twice as much to merchants at the end of September as it held in cash. Meanwhile, marketing costs rose 37% in the last quarter, four times as quickly as the company’s cash stockpile.
Facing competition from Amazon (NASDAQ:AMZN), Google (NASDAQ:GOOG), and LivingSocial, all of which offer group discounts and have been giving more favorable terms to merchants, Groupon has had to accept lower margins to avoid losing business.
The price range for Gorupon’s IPO was based on a projection that the company will have sales of about $2.1 billion next year. The $17 midpoint valued the company at $10.8 billion, or about 5 times that sale prediction. In comparison, Amazon traded at about 1.5 times estimated 2012 revenue yesterday.
Groupon reported a net loss of $214.5 million for the first three quarters of 2011, and in September announced the departure of its second operating chief in six months. For its IPO, Groupon floated a record-low percentage of its total outstanding shares in order to stoke demand. Only 4.7% of the stock was made available to the public, less than in any U.S. Internet company IPO of more than $200 million since at least 2000.