NEW YORK Groupon, the company that pioneered online group discounts, saw its stock rise about 30 percent in its public debut Friday, showing strong demand for an Internet company whose business model is considered unsustainable by some analysts.
Groupons stock initially jumped as high as $31.14 per share or nearly56 percent from its opening price of $20 a share before losing some steam.
Shares closed a little down from that, finishing its first session of Nasdaq trading at $26.11 per share on a day when the Dow Jones industrial average lost 0.5 percentage points and failed to crack the 12,000-point level.
Big fluctuations are common for fresh public companies, and Groupons first-day rise was largely expected. What happens next is the bigger question.
Analysts said this doesnt ease worries about the risks concerning the company especially as the stock price increases.
Until investors see the full profit model unfold over time, expect this stock to be highly volatile with increasing risk as the market cap rises, said Kathleen Shelton Smith, principal of Renaissance Capital, which operates IPOhome.com. The first day of trading is typically more about supply and demand. Fundamentals will take over in the long run.
Groupon has faced scrutiny about its high marketing expenses, enormous employee base and even the way it accounted for revenue until an SEC inquiry prompted a restatement.
Chicago-based Groupon Inc. sends out frequent emails to subscribers offering a chance to buy discount deals for anything from laser hair removal to weekend getaways. The company takes a cut of what people pay and gives the rest to the merchant.
Though its spawned many copycats after its 2008 launch, Groupon has the advantage of being first. This has meant brand recognition and investor demand, as evidenced by its sizzling public debut.
The stock is trading on the Nasdaq Stock Market under the symbol GRPN.
This is not Facebook where they can do no wrong, said longtime IPO analyst Scott Sweet, the owner of IPO Boutique. He called Groupon an accident waiting to happen.
Sweet is among analysts who question Groupons business model, its high marketing expenses and frantic hiring pace that has swelled its ranks to more than 10,000 employees.
Still, the sale of its 35 million shares means Groupons initial public offering of stock raised about $700 million, minus investment banking fees, etc.