How a market downturn could change Groupon’s IPO

Groupon Logo

Groupon LogoLike other upcoming public offerings, Groupon’s now has a big shadow hanging over it.

With the NASDAQ composite index down nearly seven percent for the day in response to the U.S. government’s credit score downgrade, most tech stocks have been sent into a tailspin — especially those that recently filed an IPO.

Such news brings more speculation that group coupon deals startup Groupon could have a less than stellar entrance into the market.

The startup has already come under fire recently for its questionable investing practices and its use of an unusual accounting measurement, which caused Groupon to update its S-1 filling.

But Groupon is still growing strong. And in times of economic depression where people try to stretch their money further, coupons become a far more valuable commodity. Could coupon- and deal-brokering companies like Groupon be an exception to the market downturn effect?

“Groupon started in 2008 when the economy was in a downturn, so I definitely think it has the potential to thrive when the market is down,” said David Sinsky, data product manager for group deals tracking company Yipit.

Right now, Groupon primarily offers deals for movies, restaurants and activities that aren’t essential to the daily lives of its subscribers, Sinsky said. However, if the service begins offering more essential items from grocery stores and such, it could easily become more valuable to consumers during a downturn.

As for whether that value would translate to Groupon’s IPO, Sinsky says its possible. “Obviously every company’s stock is going to hurt during a downturn, but maybe Groupon and other coupon service companies less so than others.”

But more immediately, the current mood of the stock market will have a greater impact on Groupon’s IPO than anything else.

“I hear what you’re saying about coupon services, but at this point it’s not clear that would help Groupon’s valuation given what’s going on in the stock market,” said Conor Sen, a private investor and columnist for Minyanville.

Sen said there are two possible ways that the stock market downturn could affect Groupon’s IPO. First, Sen told VentureBeat, “the IPO could get pushed back until market conditions are favorable. Bankers don’t like to do IPO road shows when there’s blood in the streets.”

The second way is “pricing could be lower than expected. Investors will see stocks like Zillow, LinkedIn and Pandora down 20-30 percent over the past couple of weeks and recalibrate the price for GRPN accordingly,” Sen said.

“Groupon already wasn’t planning on IPO’ing until September, so it’s too early to say that the launch date will get delayed,” he said. “However, previously some were saying Groupon could be looking at a $20-25 billion valuation, and given the haircuts those other companies I mentioned have gone through something like $15-20 billion might be more realistic, depending upon how their Q2 results look.”

As for competitors like LivingSocial and Coupons.com, don’t expect for either to file an IPO until at least early next year.

“Both have the luxury of waiting to see how Groupon does before going public themselves,” Sen said.