This Friday, Groupon will end a controversial IPO trip when it lists as GRPN on the Nasdaq and officially becomes a public company. Along the way, the company faced several missteps and obstacles, including having to restate its revenues by more than 50%, facing scrutiny for an internal memo from its CEO, and having several key executives depart.
But such things don’t seem to be issues for IPO investors. Reports from The Wall Street Journal and CNBC say the deal is seeing heavy demand. According to Bloomberg, there even is buzz that Groupon will boost its $16-$18 price range.
Why all the excitement? Well, Groupon CEO Andrew Mason has been giving strong presentations on the roadshow, such as by talking up his deals with brands like Whole Foods (NASDAQ:WFM), as well as new offerings like Groupon Now! (which allows for real-time offers via mobile devices).
But Mason also has hit on the kinds of things investors really like — that is, discipline. For example, he plans to cut the worst-performing 10% of the sales force each year, and the company is likely to continue reducing its marketing expenditures.
Amid these moves, Mason claims Groupon still will grow at 40% for the next couple years. Crazy? Perhaps. After all, can a company with so much competition maintain this kind of pace? It’s hard to tell. In the technology world, it is difficult to get an accurate forecast for two years or more. But IPO investors usually do not care — their focus is on the next couple quarters as they look for a quick gain.
The fact remains that Groupon is only issuing 4.7% of its outstanding shares. The valuation also recently was cut in half (from $25 billion to $11.4 billion). So the combination of a short supply of stock and a level-headed valuation should mean a pop on the first day of trading.
Of course, this only benefits those investors who get the shares at the offering price — not those who buy in the after-market. Once Groupon starts trading, expect plenty of volatility. This happened with other offerings, such as LinkedIn (NYSE:LNKD) and Pandora (NYSE:P), which saw big drops after their debuts. So traders be warned: Give it some thought before jumping into Groupon’s IPO.
Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli. As of this writing, he did not own a position in any of the aforementioned stocks.