Groupon shares jumped more than 50 per cent to a high of $29.52 on their opening on Nasdaq on Friday morning.
The online coupon group raised $700m in its highly anticipated initial public offering on Thursday night, overcoming a host of investor concerns to break through in a difficult market for US IPOs.
The pricing at $20 a share valued the group at $12.65bn. The valuation was above its range of $10bn-$11bn, but below the valuation it had been seeking earlier this year of closer to $20bn.
The online coupon group’s initial filing this year was greeted by a wave of excitement following the IPO of LinkedIn, the social network, another member of a wave of internet companies that includes Facebook.
However, concerns about its accounting and core business sapped interest. Expectations for the IPO reached a nadir earlier this summer, as the company delayed a planned offering in September amid a sharp increase in market volatility and investor fears.
But underwriters, led by Morgan Stanley, Goldman Sachs and Credit Suisse, engineered a turnround by slashing its hoped-for price, offering to sell a historically small percentage of shares and generating investor excitement at roadshows in New York and San Francisco.
Groupon could sell up to 6 per cent of its shares in the offering if the over-allotment is exercised, the lowest percentage of any company in the US since 2001, according to Ipreo, a capital markets data and services provider. The average tech company has sold 27 per cent since 2001.
Interest in Groupon has waned steadily since its announcement of its IPO in June. Many analysts expressed doubts about the core business. Competing discount deals services were launched by LivingSocial, Google, Amazon, American Express and others, leading to some “deal fatigue” among consumers and overwhelmed small businesses with options, forcing Groupon to cut its margins with certain merchants.
After its initial IPO filing, Groupon altered the way it calculates its revenues to adjust for payments to its merchant partners amid concerns among regulators and investors. Critical potential investors also pointed to a nearly $1bn pay-out to founders and early investors.
But a host of new initiatives appear to have restored some confidence. Groupon Rewards, a loyalty programme launched in September, addressed concerns around merchant retention. New deals for travel packages and retail goods such as electronics helped Groupon diversify its business model, and an increased focus on national brands is helping to improve deal inventory.
BIA/Kelsey, a market research firm, estimates that daily deals as a marketing channel will continue to grow, from $873m in 2010 to $4.2bn in 2015.
“Groupon continues to have a basically sound business,” said Peter Krasilovsky, an analyst with BIA/Kelsey. “In the last quarter, it cut off most of its marketing dollars with little apparent impact on its business.”
However, some investors still said Groupon was overpriced at its current valuation. Analysts at Trefis, an independent research provider, said they valued Groupon at $7.9bn in a new report this week.
They cited concerns with international growth, competition and the high costs of customer acquisition as reasons their valuation was lower than that of investors who purchased shares in the business at valuations closer to $20bn in private share markets.
The US IPO market has been virtually shut since the summer, as fears for a global recession and European sovereign debt default surged, with just three operating companies coming to market since mid-August.
But the market is showing signs of thawing. LinkedIn on Thursday said it would sell $100m shares in a secondary offering. Angie’s List, a website to advertise service businesses, earlier this week also filed terms to go public.
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