Groupon is finally going public on Friday, and as the stock goes racing out into the market, there’s going to be a lot of noise about what its performance means—for the company, for the daily deals industry, and for Internet IPOs in general.
It will be easy to get caught up in the frenzy of the moment. For those who want to "keep their heads while all about are losing theirs" (to quote the famous poem by Rudyard Kipling), here are three things to keep in mind:
Groupon’s stock price will probably pop—but that doesn’t mean it’s actually worth the inflated value
Groupon’s stock is slated to open somewhere between $16-19 a share, but it will likely go soaring over the course of the day. Where it ends up is anyone’s guess (probably higher than its opening price, given the demand for the stock), but be careful how you interpret that increase. The unnuanced conclusion would be that Groupon is actually worth way more than the $10-11 billion the $16-19 stock price would suggest.
But that’s not what will actually be happening. Instead, the pop will more likely be the result of the artificial scarcity Groupon is creating. It has 632 million outstanding shares left. But it’s only putting 30 million of them, or 4.7%, on the market. So there will likely be a mad scramble from investors to grab some the shares now, in order to capture an expected upside down the road. Indeed, Reuters is reporting that there’s already more demand than shares available.
Groupon is probably not worth $10 billion, but so what?
There’s been a lot of squawking about how Groupon is probably not worth the $10-11 billion that the $16-19 stock price suggests. Barron’s, for example, estimates that the company is worth only half that. Which means Groupon doesn’t live up to its (own) hype.
But look at this from another direction and that $5 billion looks pretty impressive. Groupon was founded in 2008. To grow from nothing to $5 billion in three short years suggests that, if nothing else, Groupon has discovered an impressive business.
No matter what happens, Groupon’s founders have played a fine game
Towards the end of last year, Google reportedly offered to buy Groupon for $6 billion. And Groupon, as the story goes, turned them down. Tech circles were astounded. A two-year-old company turned down $6 billion. That’s pretty ballsy, they said. Or pretty stupid.
This summer, during the fallout around the creative accounting metrics articulated in Groupon’s S-1 filings, and the subsequent questions around Groupon’s long-term viability, that decision looked pretty stupid.
But tomorrow, Groupon enters the public markets at a valuation of almost twice that of what Google offered last year. Certainly, that’s not the same thing as money going directly in the pockets of Groupon’s founders (as would have happened with a sale), and certainly, legitimate questions remain about the company’s long-term viability, given the economics of the deals industry and the proliferation of competition.
But there’s no getting around the fact that Groupon went from zero to a $6 billion valuation in two years. And then doubled that less than 12 months later.
Like the company or not, believe they have a future or not, it's hard to argue with the fact that, to date, the company's founders have played a good game.
[Image: Flickr user MojoBaer]