Last updated: November 4, 2011 10:44 pm

Groupon shares surge on trading debut

Groupon shares jumped 31 per cent on the company’s first day of trading, bringing the online coupon-seller’s valuation to more than $16bn and reflecting a surge of excitement for one of the fastest-growing and most controversial companies to list in recent years.

Shares in the company were set at $20 late on Thursday, then jumped as high as $31.14 in the first few minutes of trading before closing at $26.11 on Friday.

Groupon raised $700m in its highly anticipated initial public offering, the second-largest US technology initial public offering of the year, according to Dealogic, a data provider. The deal valued the company at $12.6bn, higher than the anticipated cap of $11bn but below the $20bn the company had sought earlier this year.

The company’s co-founders, who own about a third of the company’s shares, became billionaires. Andrew Mason, chief executive, has a stake worth about $1.2bn.

The Chicago-based “daily deals” company took investors by storm when it first filed to go public in June, revealing astronomic growth in revenues and customers that rivalled even Google.

But sentiment toward the company quickly soured following a series of developments, coupled with a sharp rise in market volatility.

Federal regulators forced Groupon to abandon an unusual accounting measure, which resulted in much less flattering numbers for the company and shook investor confidence in the company’s management. Investors were further irked by a nearly $1bn pay-out to founders and early investors.

The company’s core business model, which has been copied by several hundred competitors, including LivingSocial, Google, and American Express, raised further concerns about the company’s long-term sustainability.

But the broader market demonstrated interest in the company’s stock beyond what sentiment leading up to the float indicated.

Some of the strong demand for the shares reflected their scarcity. Groupon sold less than 6 per cent of their shares, the smallest percentage of any deal since 2001, according to Ipreo, a capital markets data and services provider. The average technology company has sold 27 per cent of its capital since 2001.

“For the people who really want this, there’s going to be a feeding frenzy,” said Mark Lamkin, chief investment officer of Lamkin Funds. “But it’s setting these IPOs up for failure. You’re going to be able to buy this much cheaper a year or two down the road.”

Groupon’s buyers included many funds that intended to “flip” the shares to take advantage of their first-day jump. By the close, 49m shares had changed hands, nearly the entire float, making it the second most traded US stock on the day.

Longer-term investors, such as Fidelity, Morgan Stanley Investment Management and T Rowe Price, invested at much lower prices in private funding rounds, $7.90 a share, according to company filings. They each made profits of more than $190m.

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