In the days leading up to its Nov. 4 IPO, Groupon is drawing more attention than ever from investors, venture capital firms, and tech startups that view the company as a bellwether of future public offerings.
According to The Wall Street Journal, the 14 investment banks involved in Groupon’s IPO have a number of other companies that they’re hoping to take public in the next few weeks, including social gaming company Zynga and review site Angie’s List, but are waiting to see Groupon's results before moving forward. While a positive showing from Groupon could drum up additional interest for these future IPOs, a crash-and-burn scenario could scare away potential investors.
Groupon’s IPO has been designed to run smoothly. Its original $20 billion valuation was cut to a more reasonable $11.4 billion, its price-to-sales ratio 6.3 is lower than other recent Web IPOs like LinkedIn and Pandora, and the unusually low number of shares being sold—just 30 million, or 4.7 percent of the total shares outstanding—is meant to ensure that there’s more than enough demand when Groupon’s stock debuts.
Still, many investors are wary of a Groupon IPO. The company drew criticism early on for the questionable accounting metrics used in its SEC filings, as well as a critic-attacking memo from CEO Andrew Mason that was made public during the company’s "quiet period." Groupon managed to improve its weak financials ahead of its IPO, but cutting down on marketing to decrease losses took a major toll on revenue growth, which slowed to just under 10 percent last quarter.
When the stock does go public, some analysts believe that finding long-term investors could be difficult, especially with many buyers planning to immediately flip the stock. “They don't trust it,” Scott Sweet, managing director of IPOBoutique.com, told the WSJ.