Groupon Dives Into the Tech IPO Bloodbath

Groupon is getting ready for its first day of public trading, and market analysts and experts say they know how this thing is going to go, already. First comes the offering at $20 a share, which puts the company at a $12 or $13 billion valuation, twice as much as Google offered to buy the company last year. Second comes the pop. Fourteen U.S. IPOs padded their market value by more than 50 percent on the day they went public in the last year. LinkedIn popped nearly 100%; Zillow nearly 200%. Third comes the reckoning. Not for all hot tech companies, but for most.

Of the 25 U.S. IPOs with the biggest opening pops in 2010 and 2011, 20 have fallen since, Mark Gimein reports from Businessweek.

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There will be a lot of noise about the momentum of Groupon's stock in the 24-hour window of its public offering, but the pop lasts a day (or in LinkedIn's case, a few days). The reality sets in over time. And the reality is that Groupon, once the fastest growing company in the American history, still shows no signs of profitability. Small businesses have publicly fired back at online deals. The firm's accounting, which for a time excluded marketing costs, has been likened to a fairy tale. The company's claim that its business model will benefit from network effects runs up against the fact that its value has been decreasing as it gains more users. One of its oldest markets, Boston, is showing signs of deterioration.

And yet. There is great demand for Groupon's first batch of shares (some of it amplified by the fact that the company is selling a particularly small portion of its total stock). Either investors really do believe that there is a business model at the bottom of the heap of Groupons, or else they think they're smarter than the rest of the market and can spin off Groupon shares on a bunch of suckers in the weeks and months after the IPO.

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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