Further to my many posts along the lines of ‘Bubbles revisited’ and Groupon to IPO in particular, I guess I better close the loop.
Groupon technically IPOed at $20 a share. Rose to $31 and have since floated back to $24.65. I say ‘technically’ as no mere mortals were able to buy at that price. Only 6% of the shares were floated (about the lowest for any IPO we know). So scarcity value meant that only quite insane retail investors bought in on the first day when almost all the floated shares changed hands. Anyway, I am not a fan of Groupon. I think their model is so easy to copy –a s indeed is increasingly the case.
As we have said before, for most of Web 2/0 ‘social’ stocks, the main gains are made by investors before the IPO – not afterwards. Same applied to LinkedIn where just 9% of their shares were floated at $45. But the first proper dealings were at $83 before rising to $122 within the first two hours of trading (Source – David Schwatz in the FT on 12th Nov 11) Linkedin has since fallen back to $79.
Of course, these huge swings in the first hours/days of an IPO are reminiscent of the old dot.com bubble days. They did the tech industry no favours. Most investors are in there for the long haul.
David Schwatz concluded his article on investing in social media groups thus. “The best way to build a small fortune by pouncing on these shares when they first come to market is to start with a big one”.
Quite!