Tuesday, November 1, 2011

Groupon IPO


And finally the Groupon IPO is coming in the first week of November. I have written twice long before, that Groupon business model is weak because it can be replicated in about  1 minute. I may be completely wrong about this, however you do not reject an offer for 6 billions dollars from Google, this seems like kind of crazy!

Now the time has come to prove me wrong or right. Groupon is valuing the company at 12 billion dollars but its IPO is just 5% of shares, which make it the smallest IPO ever, almost. This work both ways: the thin offer could cause great demand and by the end of the day the company will be worth 35 billion if the stock triples or worth 8 billion if it falls half the price. But why are they doing this?

My take is the following: If an investor bought 100 million shares on second market worth 100 million dollars, it sells 5%, 5 million shares at 16 is 80 million dollars almost the initial investment. I believe this is my guess of the situation they are selling 5% so the initial investors  loose just  20% or 30% of their investment. Not bad as an strategy to recover an investment first and second renember GS and MS are one of those investors.

I will see what happens and for sure get back to the topic.


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