Groupon IPO: Company Raises $700 Million, Valued At $12.8 Billion

By Alistair Barr and Clare Baldwin

(Reuters) - Groupon Inc raised $700 million after increasing the size of its initial public offering, becoming the largest IPO by an Internet company since Google Inc raised $1.7 billion in 2004.

The global leader in "daily deals" is now valued at almost $13 billion after saying it increased the offering by 5 million shares to 35 million in total and pricing them at $20 each, above an initial range of $16 to $18.

The debut of the three-year-old company, which sells Internet coupons for everything from spa treatments to nose jobs, is one of this year's most closely watched. Its tiny float represents just above 5 percent of the company and helped drive up demand and price.

That constraint -- one of the smallest floats of the past decade -- should support Groupon's share price when it begins trading on the Nasdaq on Friday under the ticker GRPN, analysts say.

But in the longer run, they cited concerns about competition from the deep-pocketed likes of Google and Amazon.com Inc; the need to spend continuously to drive user growth; and questions about accounting after the company altered its IPO filings twice to change the way it accounted for revenue.

"Groupon is expensive. The $12.8 billion valuation is only achievable because of the low float," said Rob Romero, head of technology-focused hedge fund firm Connective Capital Management.

"Today's reaction to LinkedIn floating additional share supply is an indication of how tight supply-demand of shares can distort valuation for a new IPO."

LinkedIn, which remains well above its $45 IPO price, plummeted 9 percent after-hours after unveiling a proposal to sell up to $500 million in stock. It had floated 8.3 percent of its shares during the IPO.

Pandora Media, a music streaming service and another recent dotcom debutante, sold 9.2 percent of the company.

At $12.8 billion, Groupon commands a price tag more than twice what Google offered to buy the company last year.

WIDESPREAD CRITICISM

Beyond Friday, Groupon shares may prove volatile on concern about the company's ability to generate long-term profit and revenue growth, plus the likelihood that existing investors will sell some of their holdings at some point.

Quirky music major and CEO Andrew Mason and his executive team spent almost two weeks on the road pitching to investors and addressing widespread criticism about Groupon's replicable business model, slowing growth and accounting concerns.

"The post-IPO investor will be taking a risk on this deal," said Josef Schuster, founder of IPO research and investment house IPOX Schuster. "It's maybe a good trade for a day trader, in and out in a single day, but I don't want to be in it for the long run."

To pull the deal off, the company cut its valuation by about half. Existing shareholders aren't selling. And it skipped meetings with potential investors in Europe and Asia.

If underwriters, led by Morgan Stanley, Goldman Sachs and Credit Suisse, exercise their right to buy just over 5 million more Groupon shares in the IPO, known as the greenshoe, Groupon will raise more than $800 million, before fees.

Wall Street will scrutinize Groupon's Friday showing for clues as to how other highly anticipated dotcom IPOs -- from the likes of Facebook or Zynga -- may fare.

LinkedIn surged on the first day of trading in May and remains far above its $45 IPO price. Pandora's shares surged initially, then slumped. Its shares traded below the $16 IPO price on Thursday at just over $15.

Groupon "is a company with permission to market to 150 million consumers daily. No other company in the world has ever had that type of reach," said Boyan Josic, chief executive atDailyDealMedia, which tracks the industry.

"Investors who truly understand this business model and the position that Groupon has in this market are buying."

(Editing by Edwin Chan, Tiffany Wu and Muralikumar Anantharaman)
Copyright 2011 Thomson Reuters. Click for Restrictions

Comments

[Globally warmed]

11:50 AM on 11/05/2011

Just another bubble to burst soon. The company that produces nothing.

[bigprogressivejohn]

02:00 AM on 11/05/2011

I'm waiting until I get a Groupon offer to buy the stock at half price.

[oilfield]

04:38 PM on 11/04/2011

it opened at 28.00 and bottomed at 25.90.....someone made a fortune today.

[Larry Cowden]

04:15 PM on 11/04/2011

It's just one more unwanted "spamming company" we have to deal with on the internet! As if there aren't enough already!

[charpist5]

04:02 PM on 11/04/2011

I have no idea what Groupon is....

[des946]

03:47 PM on 11/04/2011

Stock brokers should be paid somewhat like commisssioned salesmen. Well, let's see what it is worth in a year or two. They shold be paid a percentage fee of their commission perhaps 3 months or six moths after they sell the stocks. of course this only applies to broker selected/recommended transactions. If they had to rely on that for their income, their recommendations might be quite different, huh?

Yeah, there really isn't any practical way to handle that . . . so one can assume that a broker, like a car salesman, is only selling and pushing what theycan make the most money oof of, without regard for the customer's long term interests. Brokers are nothing more than "boiler room sales people". only a naive fool would trust these people.

[BinghamLofts]

03:41 PM on 11/04/2011

the company is not worth anything. this is one big ponzi.

[Kev n]

03:09 PM on 11/04/2011

How's the recent GM ipo working for you?

[oilfield]

04:35 PM on 11/04/2011

depends on when you sold.....and bought. i dont know why anyone would buy the stock though...they have a history of government intervention.

[CamelPaw357]

03:07 PM on 11/04/2011

It would be financially dangerous to invest money in this company. Hell, you'd be safer with Godfathers pizza stocks.

[mastheader1]

02:26 PM on 11/04/2011

remember the dot com bubble ,make money then get out and stay out

[sensimilla]

02:17 PM on 11/04/2011

Just another "pump & dump" scheme for wall street insiders to bilk unsuspecting individual investors out of their share value while lying about present stabillity and future profits. Expect shares for Groupon to drop precipitously within 6 months as these big firms drop their discounted ipo shares by the million, leaving individual investors holding worthless shares.

Wall street-+1
Main Street investor -1

[Rick Carufel]

02:15 PM on 11/04/2011

This is a prime example of way financial criminals work. The initial IPO is not a public offering. The price of $16, $18 or $20 per share will never be sold to the general public. Go to any stock trading site and you will never be able to buy stocks at their IPO price. Insider trading has already bought all the shares at that price and you can only buy shares at a price where the insiders are already making a profit.

[endlessdrip]

03:00 PM on 11/04/2011

I am very glad that people like you make comments. For most of us we are in the dark when something like this happens. Thanks for telling it straight.

[ema123]

01:51 PM on 11/05/2011

Having worked in the industry -investment banking, the comments are absolutely true the only ones who make money are the bankers promoting the IPO and a few select hedge fund customers of the banks, the genral public always loses just look back at the dotcom bubble - the hugest transfer of wealth in history.

[oilfield]

04:36 PM on 11/04/2011

and whatever institution did the ipo will generally have options for more shares at the ipo price.

[demsxobama]

01:57 PM on 11/04/2011

Bigger is NOT better. In fact in 1890 there was public outcry against monopolistic activities, those that led to becoming too big, too dominating, and too powerful. As a result Congress passed the Sherman Antitrust Act. The Clayton Antitrust Act and the Federal Trade Commission Act were both passed in 1914 in follow up. These laws placed things in check for a period of time. During the 1980's, however, the antitrust laws were not rigorously enforced. Since that time there appears to be only hand slaps as not only corporations grow dominate in certain areas , but vital industries such as banking /finance, energy / oil, transportation, pharmaceutical, Internet & social networking, healthcare, communications, and others have fallen into the hands of the giant few.

We now frequently hear the phrase “too big to fail”. Why is it that no one questions how and why these entities, in direct opposition to anti-trust and anti-monopoly laws, were allowed to get so big? In fact “too big to fail” is the exact antithesis of the antitrust laws that were felt to be critically important at the time.

[ema123]

01:52 PM on 11/05/2011

Thank the republicans

[ahnree]

01:34 PM on 11/04/2011

Talk about occupy wall street, only these "big" capitalist firms get first dibs on the pre-ipo shares. joe public isn't even aloud to get in on this BS. that is the problem with wall street, more white collar distancing from the average guy. only the elite have ties to get into this kind of jackpot.

[aaapreciseplumb]

01:40 PM on 11/04/2011

You are not correct. Very easy to purchase shares of a company on line, sign up at td waterhouse or etrade and start buying it's that easy. You to can be a fat cat in no time LOL

[sensimilla]

02:12 PM on 11/04/2011

no, ahnree is somewhat correct. Venture capital and financial firms have dibs on shares at ipo price, and common "joes" cannot get in until well above ipo price.

Many ipo's are just scams to make wall street BILLIONS, while bilking individual investors.

Doesn't matter, this company will be out of business in 2 yrs anyway, and this stock is going to PLUMMET.

[oilfield]

04:37 PM on 11/04/2011

it opened at 28.00 and didnt go below 25 today.

[rini1946]

01:47 PM on 11/04/2011

who cares the stock is going of dive. There are to many new half off groups out there and more coming

[des946]

01:22 PM on 11/04/2011

ONE QUESTION: How much "discount" did the brokers get off of the IPO stock? Was it 20%, 40% or what?

It is a major rip off when the brokers can get both substantial discounts off the stock price and ALSO charge the investors fees. This is alljust a part of the corrupt way that Wall Street operates . . . they get their money up front from the initial investors.

So, has anything changed with the way Wall Street rips off the investors? Shouldn't the brokers have to disclose the discounted price of the stock to the potential investors?

[sensimilla]

02:18 PM on 11/04/2011

Nothing has changed about how wall street insiders pump up these stocks and then unload them enmasse to bilk the millions of individual investors.

Classic scheme in the late 90's for companies without a profitable business model.

[des946]

03:41 PM on 11/04/2011

I just wonder if there will be any disclosures as to how this IPO was ahndled.

Too many of the American people haven't learned that Wall Street is rigged for the "big boys" to skim off your investment monies as horrific profits to themesleves. Even Bernie madoff, in the only truth that he ever said, said something to the effect that that Wall "Steet was a "rigged game" for the "insiders".

Until there are prudent and reasonable regulations to put sme integrity into ivesting via Wall Street, it is a suckers market. It's like las Vegas gambling. The "house" (Wall street "insiders' ) win 90% of the time. yeah, there are a few random "winners'; but that is necessary to keep the suckers coming back. I long ago liquidated my investments and have saved a lot of money from "market losses"., which are really GAINS for the "insiders". The operation of Wall Street needs to be totally revamped to make it more reasonably fair for the average investor. Computerized trading needs to be eliminated; as well as the dealy of the market information which gives the "insiders" a horrific advantage with their computerized trading to use arbitrage to skim a lot of money from the "average investors". Wall Street is nothing more than a rip off for most investors.