Many tech darlings are holding off on their initial public stock offerings, hoping they can wait until the turbulent market becomes a bit more receptive. Not Groupon. After months of speculation, the daily-deals giant is going public on Nov. 4, seeking to raise as much as $540 million by selling off just 4.7 percent of its shares. Once an extremely promising web property, Groupon has fallen from grace in recent months, as filings revealed that the company is highly unprofitable and bleeding hundreds of millions dollars. Will an IPO help Groupon resume its meteoric rise?
Groupon really needs the cash: This move may be more "necessity than choice," says Ari Levy at Bloomberg. Groupon is strapped for cash, with marketing costs having grown by 37 percent last quarter. As of the end of September, Groupon owed merchants nearly twice as much as it held in cash. In the first nine months of the year, Groupon lost $214.5 million. But perhaps going public now "may cushion Groupon against slowing sales growth and ballooning costs and give the company time to tweak its strategy."
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It's better for Wall Street insiders than Groupon: The Groupon IPO "has little to do with building a strong company or focusing on buy-and-hold shareholders," says Tom Taulli at Forbes. It's "really just Wall Street's financial engineering at work." Share prices will likely surge at first and then take a tumble, giving short sellers a chance to get in and then make a tidy profit on the way down. "The bottom-line: Unless you are a quick-fire trader that can compete with hedge funds, you should stay away from the Groupon deal."
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Groupon still has a rough road ahead: "The riskiest time for the company will be early next year in Q1," says Henry Blodget at Business Insider. It's likely that in the last quarter of 2011, analysts will give Groupon a bit of a pass, and lowball estimates to set the company up to "beat expectations," even if it's performing poorly. But by next year, Groupon will really have to prove its $12+ billion valuation and be "truly surprising on the upside." That's no easy task for the struggling company.
"And now another analyst says Groupon is worth less than the IPO Price..."