With less than 6% of total shares being sold to the public, a tight supply ensured that Groupon’s (NASDAQ:GRPN) stock surged right after the IPO. The long-standing hype over the company only added fuel to the fire and an army of Wall Street salespersons smiling and dialing, shares rocketed by more than 50% higher than company’s IPO pricing in its Nasdaq debut.  However, concerns over the company’s business model continue to raise concerns on whether investing in Groupon is a sound, or viable, option in the long-term.
- Groupon Bear Case: Declining EMEA Gross Billings Could Lower Valuation By Over 10%
- How Important Is North America For Groupon?
- What Can Move Groupon’s Stock By Over 10%?
- How Do Groupon’s Revenue Per Gross Billings Vary Across Regions?
- How Does Groupon’s Gross Billings Per Customer Vary Across Regions?
- Groupon’s Stock Tumbles As Net Loss Triples
Feverish Trading Accompanied the IPO
With 35 million shares sold to the public, Groupon showed one of the highest trading volumes on 4th November with over 50 million trades.  This was a strong indicator of how investors, or traders rather, flipped the stock for a quick profit based on confidence that the: 1) hype, 2) limited supply, 3) underwriters’ trading desk supporting the stock and 4) knowledge that everyone else was doing the same trade, could be exploited.
This aside, Groupon still has its share of problems to contend with in the coming quarters. Declining revenue per subscriber growth and high marketing expenses continue to weigh on the company. Additionally, the amount of money Groupon owes to its merchants continues to rise as it keeps expanding, with the working capital deficit being around $300 million by the end of Q3 2011.  As Groupon’s steep revenue growth slows , it might face a cash crunch in paying off its merchants.
We recently launched coverage on our analysis of Groupon with a $8.6 billion valuation estimate. Refer to our note on why Groupon’s valuation has fluctuated significantly over the past 2 years.Notes: