TOPICS > Economy

Groupon’s IPO Skyrockets: ‘As Near a Perfect Launch as a Company Could Hope for’

November 4, 2011 at 12:00 AM EDT
Daily-deal website Groupon began selling its stock Friday with one of the largest public offerings for a tech company since Google. Judy Woodruff discusses the day of high-flying trading with John Abell of Wired.com.
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JIM LEHRER: And to the latest tech company to go public, even amid questions about its value for the long haul.

Judy Woodruff has our story.

JUDY WOODRUFF: It’s been just three years since Groupon pioneered the idea of a business built around selling Internet coupons and daily deals to a mass audience. Today, it began selling on the stock market, with one of the largest public offerings for a tech company since Google.

At its height today, shares sold for as much as $31 apiece, pushing the value of the company to nearly $20 billion. Its initial offering of 5 percent of its shares raised more than $700 million for the Chicago-based company. By the end of the day, it closed at a little more than $26 a share.

But for all of its high-flying trading today, questions have persisted about the company, about its business model, and the staying power of that tech sector.

We explore all this with John Abell. He’s the New York bureau chief for Wired.com.

John Abell, thank you for being with us.

And, first of all, for people who haven’t used Groupon, explain how it works.

JOHN ABELL, Wired.com: Well, it’s an old idea where you — a merchant gives a customer a discount to come in to use the store or to use the service.

The difference here is, is that it’s on the Internet. And in order to take advantage of the deal, enough people have to want to do that deal. So, for a limited amount of time, if 100 people or whatever the rule is, sign up for it, then everybody gets the deal.

JUDY WOODRUFF: And is it making money? How does the business model work?

JOHN ABELL: Well, the business model is really quite simple. The merchant pays Groupon a certain amount of money to do this. Groupon has certain costs, primarily the cost of the copywriters who create these pithy marketing things that go out in emails and via their app.

The merchant breaks even, takes a loss, gets new customers, and you make it up in volume.

JUDY WOODRUFF: And has it been turning a profit?

JOHN ABELL: Well, we will know soon.

And now that it’s a public company, it’s obliged to say what its model is. As part of the road show, it was making presentations that it was on the road to profitability. Typically, for companies that start out, they burn a lot of cash, and people are interested in buying it based on the prospects it has, not necessarily the money it’s making now.

So, this is a big bet on what is probably the best-known, the most successful of these daily deal services, the biggest, earliest mover. So if you believe in the sector, this is the company that a lot of people think is the one to bet on.

JUDY WOODRUFF: And the decision it made, John Abell, to make just 5 percent of its shares available, why did they do that?

JOHN ABELL: Well, you know, it’s interesting. A lot of the entrepreneurs these days, Mark Zuckerberg of Facebook notably, are not terribly interested in going public and then losing control of their companies.

And Andrew Mason, the CEO, one of the founders of Groupon, is really interested in getting a cash infusion in this way, and not be beholden to more venture capitalists and getting a little excitement in the public, who — the public is his customers as well — but not terribly interested in losing control of the company. Terrible things can happen to founders when that happens. And he doesn’t need more than this right now so far. So, good for him.

JUDY WOODRUFF: So how did investors react? I mean, watching the market today, what did you make of that?

JOHN ABELL: Well, it’s very tricky with IPOs. And, of course, it’s a very strange time in the market with what’s going on overseas. The timing was what it was.

I think the underwriters are delighted that it closed at $26, or whatever it did, which means they didn’t leave a lot of money on the table, but it closed above what they set the price at. So, I think that the champagne corks are definitely popping. This is as near a perfect launch, a public launch, as a company could hope for, I think.

JUDY WOODRUFF: But, as we mentioned, there are these questions about — I just asked you about the business model. What is the sense in terms of whether consumers are really saving a lot of money, whether consumers benefit from this? And then, conversely, what about merchants?

JOHN ABELL: Well, sure.

It’s kind of a win-win in a way. The offers are kind of random. You can search the site and find things that you might like, but, every day, you get an email when you sign up, which says, here’s a spa treatment, and if 500 people sign up for it, it’s $20, instead of $80. Well, you didn’t wake up wanting to have a spa treatment today, but maybe you will do it for 20 bucks.

On the other hand, the merchant is saying, look, if I can get 500 people to pay $20 to come to my store, which pretty much guarantees that they will, a fraction of those might become regular customers. So, even if I’m not making money on this, I’m sure to make money on the prospect of other people coming.

And Groupon making the market makes money no matter what. It’s like a broker, because it gets money from the merchant and it gets a lot of people interested in signing up. So, that’s the way it works. The trouble is that it’s not like you’re building the next great computer. The barrier to entry to this is not terribly high.

Google is a player in this space and tried to buy Groupon and was spurned. Groupon’s IPO is twice what Google offered to pay for it, so maybe that was the smart decision, maybe it wasn’t. But there are lots of players in this space. Today’s the day for Groupon, but tomorrow may not be the day for Groupon.

JUDY WOODRUFF: So, as you look not only at what happened today with Groupon, but at this — as you say, this space of these so-called daily deal sites what, are the prospects?

JOHN ABELL: Well, quite good. I think the trajectory is still quite high.

There is not only the sort of daily deal sites like Groupon and Google and others and LivingSocial that offer a wide range of things. There are a host, a multiple of daily deal sites which offer things in specific verticals, specific — specific niches. So you will find people that are signing up for a service which offers a narrow range of kinds of things, as opposed to the free-for-all, which is Groupon and Google, which is based on geography, as opposed to particular interests.

JUDY WOODRUFF: All right, well, we are going to watch it.

And, John Abell with Wired.com, thanks very much.

JOHN ABELL: Pleasure.