Should You Hold On To Groupon Stock? What About Zynga?

The dust has settled a week after Groupon’s IPO last Friday. Here’s a quick Q&A on the offering.

How much did Groupon raise?

$700 million. It was the largest IPO by a U.S. Internet company since Google Inc. raised $1.7 billion in 2004, according to Reuters. Groupon is now trading on the NASDAQ under the ticker GRPN.

All that sniping about accounting and the company’s business model?

It’s history. At least for now. The company’s float was only a little more than 5% of the company, which means the firm is now valued at $13 billion. Shares rose to $20, above an initial range of $16 to $18, and by the end of this week were trading around $24.

But the company faces deep-pocketed competition and restive merchants, as this Marketwatch report on Groupon’s practice of paying merchants slowly shows.

Who made out?

The Groupon (paper) millionaires and billionaires list, including founders and early investors, via The Wall Street Journal:

• Andrew Mason
• Eric Lefkofsky
• Bradley A. Keywell
• New Enterprise Associate
• Accel Partners
• The Samwer Brothers

How long should you hold on to your stock? Should you invest now?

BusinessWeek did an analysis of IPOs in 2010/2011 and found that after  the initial “pop,” 20 of the 25 fell.

Carl Richards of The New York Times had this to say in his column:

“Normally when you invest money, you actually need it for rather important things like sending your children to college. So you do at least a little research. IPOs in general are hard to research, and Groupon has been no exception. You have the chief executive, Andrew Mason, saying things like, “With a market measured not in billions but in trillions of dollars, we’re just getting started. And on the other hand, you have a new company in an industry it almost invented, with no profits. Sounds like a tossup to me.

There is nothing wrong with using money to gamble on a tossup. Who knows, you may be right. Just do everyone a favor and stop pretending that it’s an investment. It’s a lottery.”

This blog post looks more specifically at the performance of tech IPOs, and here’s our post that offers a great background on understanding tech IPOs.

“The popular perception of the IPO process is that in the first phase, lucky insiders suddenly become millionaires, and that anyone buying shares during the second phase is “late to the party,” and might be left “holding the bag.” As with most perceptions, this is partly true but mostly false,” writes Barry Randall in the post.

What about employees who own shares?

Business Insider reported that employees are not permitted to sell their shares for 180 days post IPO. Apparently, there was some confusion about the issue.

“It would have been pretty weird if Groupon employees had been able to sell on day one,” wrote Business Insider. “The banks that underwrite IPOs almost always forbid this. They don’t want everyone dumping the stock the moment they can, and hurting investors buying into the company on the IPO.”

“On the other hand, it’s got to be pretty frustrating for Groupon employees to be jerked around like that.”

What does Groupon’s IPO mean for the IPO market?

The Wall Street Journal reported on the champagne at Groupon headquarters and noted that:

“Silicon Valley and Wall Street took Groupon’s stock market debut as a sign that investors are still willing to make risky bets on fast-growing but unprofitable young Internet companies, even as the initial-public-offering environment has shifted over the past few months due to stock market volatility. Groupon’s IPO in particular is viewed as setting the tone for other highly anticipated tech IPOs like Zynga Inc. and Facebook Inc.”

One small Silicon Valley company, Imperva, has already ridden the IPO wave, issuing five million shares of stock on Wednesday to raise $90 million. The stock was trading at about $25 at the end of the week, up from its IPO price of $18.

Zynga Storm

All eyes turned to Zynga, which reports said would schedule its IPO for after the holidays. Late in the week, The Wall Street Journal, citing unnamed sources, said that Zynga CEO Mark Pincus had asked some employees to give back pre-IPO shares.

The Wall Street Journal further stated that Pincus, who gave out stock freely to keep top talent early on, developed “giver’s remorse” and that some of those early recipients of stock did not contribute as much to the company as later employees who got fewer shares.

Reuters reported that asking for give-backs is not uncommon, and quoted Lynne C. Hermle, a Silicon Valley employment lawyer. Ms. Hermle, who does not represent Zynga, said the practice happens at other companies, too.

“I have not seen it publicized but it does happen,” she said, citing attorney-client privilege for not naming the companies. “Sometimes it’s a negotiation and sometimes it’s a fight.”

The Financial Times said the move challenged the traditional pay structure of Silicon Valley, which has rewarded early employees of startups with lottery-like winnings.

The sun shines in California. Not so much in NY.

For another sign of the decline of Wall Street, contrast the situation surrounding the Groupon IPO and the champagne flowing through Silicon Valley (even though Groupon is headquartered in Chicago) with the dour mood descending over New York.

The MF Global bankruptcy continues to unwind, casting ever-more-doubt on the success any regulator could have reigning in the excesses of the Street, given the culture of secrecy that thrives there. (See our post on Why Investors Should Care About MF Global).

Bonuses on Wall Street are dropping.

“Johnson Associates, a Wall Street compensation expert, is out today with its projection that bonuses on the Street this year will drop by as much as 45% in some units, says Halah Touryalai of Forbes.

Another sign of the times: Out-of-work hedge fund millionaires are exiting Greenwich, Conn., en masse, with a record number of their pricey mansions now on the block, says the NY Post.