Groupon To Sell 30M Shares At $16-$18 A Pop | Hacker News Reader

Groupon To Sell 30M Shares At $16-$18 A Pop

techcrunch.com

14 pointssinzone21 comments

Anyone thinking about buying Groupon stock - check LinkedIn's after November when the lock-up agreement expires.

LinkedIn, like many IPOs, had a lock-up agreement. That means that insiders and venture capitalists (or investors who bought the stock pre-IPO on a secondary marketplace like SharesPost) can’t sell stock for six months following an IPO. This helps stabilize the stock in its early days. It also leads to possible dips in stock value around the time of expiration. The agreements for LinkedIn will expire in November.

http://www.investmentu.com/2011/August/linkedin-good-company...

In Matt Taibbi's book, Griftopia, most of these stocks are little more than pump & dump operations by finance industry, who collect some fees on the side.

Here’s how it works: Say you’re Goldman Sachs and Worthless.com comes to you and asks you to take their company public. You agree on the usual terms: you’ll price the stock, determine how many shares should be released, and take the Worthless.com CEO on a “road tour” to meet and schmooze investors, in exchange for a substantial fee (typically 6–7 percent of the amount raised, which added up to enormous sums in the tens if not hundreds of millions).

You then promise your best clients the right to buy big chunks of the IPO at the low offering price—let’s say Worthless.com’s starting share price is 15—in exchange for a promise to reenter the bidding later, buying the shares on the open market. Now you’ve got inside knowledge of the IPO’s future, knowledge that wasn’t disclosed to the day-trader schmucks who only had the prospectus to go by: you know that certain of your clients who bought X amount of shares at 15 are also going to buy Y more shares at 20 or 25, virtually guaranteeing that the price is going to go past 25 and beyond. In this way the bank could artificially jack up the new company’s price, which of course was to the bank’s benefit—a 6 percent fee of a $500 million or $750 million IPO was serious money.

Taibbi, Matt (2010-11-02). Griftopia: Bubble Machines, Vampire Squids, and the Long Con That Is Breaking America (pp. 213-214). Spiegel & Grau. Kindle Edition.

That 6-7% is 6-7% of the offering price, not the day's closing price. So the statement "In this way the bank could artificially jack up the new company’s price," is the opposite of the truth: in this way, the bank lowers its fee in exchange for a first-day price increase. That's marketing: Goldman wants to be able to sell the next IPO, so they try to pay off their customers. And that means they can promise e.g. Groupon that they'll have enough buyers.

As usually, Taibbi is vaguely correct (investment banking is a middleman between two groups that are individually worse-informed than the bank is). But he either doesn't understand how this actually works, or deliberately obscures the facts in order to make his point slightly stronger.

>So the statement "In this way the bank could artificially jack up the new company’s price," is the opposite of the truth

You're taking issue with at what point Goldman Sachs takes their 6-7%, while totally ignoring the main point: Goldman Sachs has engaged in laddering which is considered fraud.

It ultimately depends on some greater fool to work, though. If we don't buy the stock, then either the equity owners of Groupon or the investment banks (or both) are left holding the bag.

I just hope that I don't indirectly end up involved in this through my 401(k) or something.

I'm not going to buy it until it goes on sale for 90% off.

I'd like to suggest that is should read "Groupon to TRY to sell 30M shares at $18 - $18 a pop" as I really don't think anyone in their right mind should buy them.

Sadly much as I'd like to believe that this IPO will fall on stony ground I suspect that there are enough people out there who'll snap it up that they'll get their money.

Odd how we can be in a global economic crisis and a bubble at the same time. Strange times.

An IPO gets underwritten by investment banks, so the Groupon founders will get their money anyway.

It will definitely sell for that much. After 4 days it will reach its all time high and then plummet. Pump and dump!

i would never buy groupon stock. this is a doomed biz model because it's not based on any real technology...the entire company is mostly comprised of only salespeople, which is pretty scary.

>this is a doomed biz model because it's not based on any real technology

Neither is Dairy Queen, but everyone knows if they want delicious vanilla soft server where they need to go. Likewise, millions of discount seeking customers know that a place to go to find discounts is Groupon.

Groupon is doomed if they can't get revenue above their operating costs. It has nothing to do with the technology they are based on.

No one makes Dairy Queen soft serve but Dairy Queen. Everyone makes 50% time based group coupons.

The point was that Dairy Queen isn't based off some spectacular technology.

> Everyone makes 50% time based group coupons.

Everyone? That's silly. Do you mean the coupon market is saturated? I would agree. But Groupon is at the very top. How does that doom them?

Dairy Queen has physical locations, serving that specific location and market. It takes time for the company to do research on specific market segment and why there needs to be a physical location there. It also takes time to build, train, and hire employees in order to service that market.

Groupon: user is only sustainable based on type of deals. business model easily replaceable by any upcoming player.

plus there's so many things going inside the company right now...Groupon's own sales team is suing the company? come on, what does that speak to the company itself? the whole company is made up of salespeople!!

Don't get caught up on the metaphor. It's ice cream. That was the point.

If you, or anyone else, wants to explain why Groupon is doomed, then do so without saying the reason is because it's "not based on any real technology". That's the comment I was replying to. I'm not defending Groupon.

jemka, my point is that Dairy Queen has more real technology than Groupon. Their icecream is their product. Groupon has none. Groupon has coupons as a product and that's not a technology. Icecream is!!

The point you're painfully missing is that success of a company (including Groupon) isn't dictated by how much or little technology they use. If you feel Dairy Queen was a bad metaphor for that, then I apologize for your confusion.

Sure, Groupon is successful, but is it sustainable? To me, it's not a good business model because it could be easily copied, easily replaceable, and anyone could do it. Short-term success doesn't translate into a sustainable business model.

That statement is useless, it can be reversed easily. "Anyone can make soft serve ice cream. No one makes Groupons but Groupon."

Agreed. Growing competition, encouraged by low barriers to entry, no network effects, no strategic competitive advantage... They're looking for a valuation higher than that of the Campbell Soup Company. Would Andy Warhold have turned a Groupon coupon into pop-art? I don't think so.

Groupon could pivot its way into a more tech-focused strategy (see http://goo.gl/qi8xa for an example) but I doubt their management has the wit to do so.

I'll bet $1,000 that, over the next year, the Campbell Soup Company will prove to be a better investment than Groupon.

I suspect that over the next year a tin of Campbell's soup would prove to be a better investment than Groupon.

This.

Reply on news.ycombinator.com