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Groupon shares climb 31% in first day of trading

Groupon's IPO raises $700 million for the 3-year-old company. It's the largest initial public offering for an Internet company since Google's debut in 2004.

November 04, 2011|By Walter Hamilton, Los Angeles Times
  • Employees and guests of Groupon, celebrating the company's initial public offering, ring the opening bell at the Nasdaq Stock Market in New York.
Employees and guests of Groupon, celebrating the company's initial… (Brendan McDermid, Reuters )

Groupon Inc.'s first day of trading had all the hallmarks of the dot-com boom, including a big stock jump for an unprofitable company.

Shares of the daily-deals website rocketed 31% after its listing on the Nasdaq Stock Market, which raised $700 million for the 3-year-old company. It was the largest initial public offering for a U.S. Internet company since Google's debut in 2004.

The performance helped put to rest fears about the hobbled IPO market, which fell apart this year amid the global market volatility. And that bodes well for other well-known technology names waiting for their turn to go public, including social media behemoths Facebook Inc. and Zynga Inc.

"It's really an astonishing first-day opening [for Groupon] considering all the criticism it's endured over the past couple of months," said Lee Simmons, an IPO researcher at Dun & Bradstreet. "This signals that there's really pent-up demand for these types of stocks."

Groupon, which was priced Thursday night at $20, closed at $26.11. The stock closed below the $28 level at which trading opened and the $31.14 high of the day. Groupon sold 35 million shares in a deal that valued the entire company at $12.7 billion. The stock trades under the ticker symbol "GRPN."

Groupon endured a tortuous route to its IPO. A few months ago, it was a considered a fast-rising social media phenomenon that intrigued investors by spurning a $6-billion takeover offer from Google.

But Groupon was dogged in the last two months by questions about its accounting practices and uncertain business model. The Securities and Exchange Commission raised concerns about some of Groupon's accounting, stirring fears among investors about the company's credibility.

The doubts were heightened when Andrew Mason, its founder and chief executive, defended Groupon's financial reporting in an email to employees. The missive became public during a so-called quiet period when Groupon was barred from talking up the company to investors.

As with some other highflying Internet companies, critics see Groupon as vastly overpriced considering it hasn't turned a profit and its business is being targeted by well-heeled competitors such as Amazon Inc.

"In the short run it's a great trade," said Josef Schuster, founder of IPO research firm IPOX Schuster in Chicago. "In the long run, I don't want to hold it. There's great risk."

Following the pattern of other Internet IPOs this year, Groupon's offering was boosted by the company selling only a small piece of itself — about 5%. The limited supply assured that there would be excess demand.

Groupon's plan, experts say, is to sell shares in a stream of offerings over the next few years. LinkedIn Corp., the professional networking site that went public in May, filed plans Thursday to raise $100 million in a follow-on stock sale.

For investors, the question is whether Groupon can live up to the hype and move higher over the long term.

The opening-day rise for Groupon was smaller than those of other prominent Internet companies this year, including LinkedIn, which more than doubled, and Zillow Inc., which leaped 79%.

The track record for recent Internet sensations is not encouraging, said Francis Gaskins, editor of IPOdesktop.com in Marina del Rey.

Ten of this year's high-profile Internet IPOs are trading below the intraday and closing peaks of their first trading days, according to his calculations. The 10 companies are down an average of 30% from their first-day closes and 45% from their intraday peaks.

"It's successful for the insiders, including the investment bankers, the company and the flippers" who sold at a quick profit, Gaskins said. "The outsiders will probably get burned."

walter.hamilton@latimes.com

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