As Groupon’s IPO Goes, So Goes the IPO Market?

November 11, 2011

With the successful launch of Groupon stock, the bulging IPO pipeline may be ready to flow again. After a bumpy summer that saw its valuation sliced due to reduced earnings expectations and questionable accounting practices, Groupon’s $700 million offering appears to be breathing new life into expectant investors anxious to cash in on some long awaited IPOs. No less than 16 companies have jumped on the IPO calendar for offerings between now and the Thanksgiving holiday.

Groupon IPO celebration


For all of the venture capital firms and investors holding their breath, the stock debut came as a huge relief as even more questions were being raised about Groupon’s financial health and the viability of its business model. But, as the shares were released (at $20) and after their initial thrust to a $26 close, there were pats-on-the-back all the way around.   The stock has since traded below its closing high, falling to a trading low of $24.

Whether the Groupon IPO follows the new normal pattern of Web IPO pop-ups and then pop-downs, remains to be seen. The indication thus far is that it just might.  The average first day gain for Web IPOs is 28%; however, their falls have been much steeper than non-Web IPOs which only average a 7% pop-up. Both Web and non-Web IPOs are off about 8% from their IPO prices which is right where Groupon share prices are right now. The fear with Groupon investors is that, with its fundamentals coming under more scrutiny that the shares will be more prone to “flipping” as investors may be more trigger-happy with sell orders in order to capture their gains.  Exceptions, such as LinkedIn have maintained their initial pop-ups and have managed to add to their gains, but they are few.

This underwhelming performance by tech IPOs doesn’t seem to be discouraging tech companies-in-waiting that hope to capitalize on the rush of enthusiasm created by Groupon’s launch. Zynga is now back on track for an IPO later this year, and Facebook is reportedly readying its filing for early next year. Even LinkedIn, which had the most successful IPO in recent years, is jumping on the bandwagon with a possible new issue. The next big issue, ready for prime-time, will likely be Angie’s List which is due out before Thanksgiving.

The hope is that this event ushers in a new wave of investment in tech start-ups and that the IPO market can build some momentum. The fear is that Groupon stumbles and investors, once again, lose their appetite for risk. If stronger issues, such as Zynga and Facebook can get out there with mega-successes, then, perhaps, investors may be willing to forgive and forget Groupon.


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