Online coupon purveyor Groupon (GRPN) is worth more than half the S&P 500 index, including long-running national brands like Whole Foods Market and Dow member Alcoa, according to latest IPO valuation estimation. Traders doubt it belongs in such established company.
The IPO could price $3 above the top of the $16 to $18 range Thursday, according to a CNBC report (link to Kayla’s story), giving it a value of as much as $13 billion, more than the market capitalization of 285 members in the U.S. equity benchmark.
“The current valuations for Groupon are ludicrous,” said Jim Iuorio, managing director for TJM Institutional Services. “The major mistake that the market is making is using Facebook as proxy in helping establish valuations. Groupon has no community aspect to it and therefore users are free to leave and shop for the best deal.”
Maybe these are just the rants of jealous investors cut out of the new issue because this kind of talk has yet to dent demand for the 3-year old daily deals site. All indications are that the roadshow by chief executive Andrew Mason has been well received by investors lucky enough to get their piece.
Yet many traders point out that this could be folks eager to flip the stock quickly over the short term on the initial euphoria that has been a trademark of some of the recent tech and social media IPOs.
For example, online business networking site LinkedIn (LNKD) doubled on the first day of trading in May, but its shares are off about 10 percent since then. Music site Pandora jumped 9 percent during its first day of trading in June, but now trades below its $16 IPO price.
“Caveat emptor if you are stupid enough to hold this one for more than a flip,” said Jon Najarian, co-founder of TradeMonster.com.
Questions about its accounting practices, as well as low barriers to entry for competitors, have also given investors with a long-term outlook pause.
Still, for the bears, there’s a catch. Groupon is selling very few shares to the public. So few, that the offering will represent less than five percent of the float. This makes the shares difficult to borrow in order to bet against the company through a short position.
“It seems like an easy short at the proposed market cap, however there are two very important issues that can not be overlooked: the small float makes it very dangerous to short and Google tried to buy them recently,” said Michael Murphy of Rosecliff Capital. “As a rule, Google does not make stupid or over-priced acquisitions.”
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