-- Just as bargain hunters salivate over Groupon's latest deals, investors are eager to get their hands on new shares of the company.
Groupon, the money-losing online deal site, sold its initial public offering shares to select investors at $20 a share late Thursday. That was considerably higher than the expected price range of $16 to $18 a share, indicating investors are eager to get a piece of the company, at least in the short term. The IPO valued Groupon at $13.3 billion and raised $700 million.
Investors were not surprised demand was so strong for the shares, despite months of skepticism over the company's financial prospects and accounting methods. "It's a unique IPO," says Nick Einhorn of Renaissance Capital. "There's been a lot of controversy around it, but many people are interested in it."
A truer sign of demand for the stock will be evident Friday as shares begin trading. Despite strong interest for the shares initially, analysts say investors should not assume any early surge in the stock will last because of:
•Questions about future profitability. Critics of Groupon suggest it's just a 2011 rerun of what happened with money-losing Internet companies of the late 1999s. Investors suffered huge losses as many of those dot-com firms' business models never worked and their stocks crashed, says Andrew Stoltmann of Stoltmann Law Offices. Groupon lost $308.1 million during the nine months ended September, following a $456.3 million loss in 2010 and $6.9 million loss in 2009.
•Short-term focus of early buyers. If initial demand for Groupon's IPO is strong, that's mostly due to interest by individual investors who may be fans of the service or traders looking for a quick pop to sell into for a fast profit, says Francis Gaskins of IPOdesktop.com. Moves in the stock also will be exaggerated in the short term because such a small slice of the company, roughly 5%, has been sold, Einhorn says.
•Ho-hum performance of recent Internet IPOs. There's no shortage of Internet companies that have had splashy IPOs only to see their stocks languish during the first few months of trading. Active Network, a provider of online reservations for events, is down nearly 13% from its initial IPO price set in May. Demand Media, a provider of online content, is down 56% from its IPO in January.
The strong initial demand on shares of Groupon puts pressure on the company to defy the critics and perform, says John Fitzgibbon of IPOscoop. The initial IPO is "expected to go well," he says. "After that, the tape will tell the story."