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Fri November 4, 2011
Groupon: The Biggest Tech IPO Since Google
In its initial public offering, Groupon is selling about $700 million in stock. As The Wall Street Journal puts it that's "the biggest tech IPO of its kind since Google's stock-market debut."
If you're not familiar, Groupon is an Internet deals company. It for example, sells $50 worth of food at a restaurant for $25. It splits the profits with the restaurant on coupons redeemed and keeps the ones that customers don't use.
And just how hot is the stock? Here's All Things D:
As you may have heard, Groupon began trading this morning, and the stock immediately leapt up from its $20 per share open to $28. That's a 40 percent leap, and it made CEO Andrew Mason, at least temporarily, worth around $1.3 billion.
That number also valued the entire company around $18 billion — about three times what Google offered to pay for the daily deals innovator last year.
The big picture here is that Groupon follows a long list of tech companies to file for an IPO in 2011. LinkedIn, Zillow, Pandora came before it. And social gaming company Zynga and local-business reviewer Angie's List will launch their IPO later this year.
As TechCrunch notes Groupon and Zynga have inspired much talk that their values are overinflated and to the tech sector "some attach the dreaded 'bubble' label, some don't, but there is anxiety brewing here no matter what you call it."
As the IPO approached lots of analysts dissected the comparison to Amazon, the web's biggest retailer, pushed by Groupon.
Amazon was better suited at the time of its 1997 IPO to withstand competition than Groupon is now, said Peter Sorrentino, a senior money manager at Huntington Asset Advisors in Cincinnati, which oversees $14.5 billion. Groupon is also generating lower revenue per employee and spending more of its sales on marketing than Amazon was, making the comparison far-fetched, he said.
"In terms of its progress toward a profitable enterprise, I think that's a huge stretch," Sorrentino said of the comparison between the two companies. For Groupon, "The beast is growing faster than its revenue stream, and you may be chasing profitability for a while."
Most analysts agreed. One of them said the only similarity is the question that was asked of both companies when they filed for an IPO: Will they ever make any money?
Tim Carmody, at Wired, saw the numbers this morning and tried to stow away his skepticism, especially when he remembers that he was equally skeptical of Amazon when it first went public. But he remains unconvinced and here's the crux of his argument:
The worry for Groupon investors is that Google or some other giant squashes it like Microsoft squashed Netscape.
Part of the problem of building a customer base filled with people scouring for the best deals is that they're always looking for a better one. This is also a problem for retailers, who are hoping to use Groupon to generate repeat business; it doesn't work if Groupon users just move on to the next deal.
Groupon already has some hefty competitors. LivingSocial is well known and Google just launched Offers, its own deals service.