Groupon Inc (GRPN) IPO Opens 50% Higher

November 4, 2011

Groupon was able to push through its IPO despite a more risk-averse market environment and recent concerns about the quality of the accounting. The IPO price of $20 was 11% above targets which were recently revised lower. The company sold shares at a valuation of $12.7B and today, on the first day of trading, the shares opened around $30 up 50%. Shares have quickly pulled back to $27, which is still up 35%. The deal was led by Morgan Stanley, Goldman Sachs, and CSFB. One important item of note is that Groupon only offered 4.7% of the outstanding shares to the public. Keeping the float extremely thin has been a strategy for recent technology IPOs in order to create scarcity value for the stock and a high valuation. Linked-In (LNKD) utilized the same strategy and saw the IPO price shoot from $45 to over $90 on the first-day. Linked-In is priced at $77 today. With such a low percentage of the shares trading a future risk will be additional issuance from the company which will provide insiders a chance to liquidate more of their holdings. Be careful extrapolating anything from today’s stock price for GRPN.







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