Groupon stock value inflates despite lingering accounting issues

Groupon's initial public offering Friday is off to a big start, and its valuation is expected to reach $13 billion by day's end.


Groupon's initial public offering received a big response when the company went live on Friday. The share price for the daily deal pioneer opened at $30 (£21), 50% above the $20 set for the Friday IPO on the Nasdaq exchange.

The company finished the day valued at around $16 billion (£10 billion), well above the company's projected first day valuation of $12.7 billion.

Groupon faced searching questions in August when it was forced to revise its initial IPO filing to the US regulator, the Securities and Exchange Commission, in an effort to clear up financial questions. Some observers had raised questions about its accounting metrics. Groupon did provide new figures to the SEC, though it said it stood by the calculations used for the initial filing.

Traders flocked to the IPO despite Groupon facing increasing competition from the likes of Google and Facebook.

"There's been a void in exciting internet IPOs," said Zeus Kerravala, principal analyst for ZK Research. "This has to be encouraging for other social companies thinking about going public. But, really, $13 billion in value for a one-trick pony like this is hard for me to understand."

Last April, Google went head-to-head with Groupon with its launching of a beta release of Google Offers, which offers savings of 50% or more for services, restaurants and attractions in the US. In September, Google upped the ante by buying Zagat, the famous restaurant ratings publisher. Zagat is expected to enhance Google's online maps, local business and local deals offerings.

Meanwhile, Facebook last spring unveiled its Deals on Facebook service in several countries including the UK. Deals on Facebook offers discounts on local activities.

Today's IPO, though, has brought nothing but good news to the Internet company.

"Groupon has had a phenomenal IPO, better than I thought, considering the stiff competition," said Kerravala. "I think the limited number of shares they were offering created more demand. But with their competition, I can't see this being a long term play unless they find a way to expand in other areas. And they could do that with the cash raised here."

"Over the next year they need to focus on execution," Kerravala said. Over the longer term, the cash raised today could be used to "perhaps buy Myspace for the community," he added.

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