Groupon Fizzles As Venture Funds Yearn for Sizzle

November 23, 2011

We promise that this is the last Groupon update of the year. But, it in an otherwise slow news-year for venture capital, it seems appropriate to follow this story through as it is likely to impact venture funding and IPO activity throughout the next 12 months. With the Groupon IPO less than a month old, all eyes are focused on the stock’s performance as a possible barometer for IPO appetite in the coming months.  As many analysts predicted, Groupon launched with a “pop” as its share price jumped to $30 on its first intra-day of trading before settling at $26; despite the general concerns over its financial readiness and overall doubts as to the sustainability of its business model.

Groupon IPO


In less than a month, Groupon seems to have lost its “pop” as its shares have slipped to just below their IPO price.  Groupon shares fell nearly 15% this week to close just above $17. While that was not completely unexpected, it was thought that investor enthusiasm would carry into the next year. But, a combination of market realities and the emergence of short sellers have proven to be too much weight on a stock that had been elevated by IPO “vapor.”

The realization that Groupon’s moat is not anywhere near impenetrable has investors concerned that it may not be able to stand up to its major competitors.  Daily dealers such as Amazon-backed Living Social are making significant gains in what now appears to be a zero-sum market.  Revenue forecasts for Groupon have already been downgraded once, and investors are growing more suspect of Groupon’s business model.

Another recent IPO that could be a barometer for the big Yelp IPO is Angie’s List which enjoyed the typical first day pop of 25%, but it too is being second-guessed by analysts who now question the sustainability of its business model.

The sudden increase in IPO activity and interest has provided a much needed boost to a dimming venture capital industry, but, if it produces more fizzles than sizzles, it could be in for another difficult year.


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