Friday, June 3, 2011

All Eyes on Groupon IPO

[Guest post by TS]

The news hit the global wires Thursday afternoon, spreading faster than rumors through Dido's Carthage: Groupon to file IPO.

So many questions go whizzing through my mind: when will they price? whats the symbol? how shall I play this one? can I get pre-IPO shares? what does this mean for this new so-called tech bubble?

Whoa! hold on there, pardner. Slow down.  Don't get your britches in a bunch!  You have some time, so let's consider this.
  • First, as many have pointed out, it could be months before the actual IPO.  Looking at Linkedin's filings, five months elapsed between first filing and actual release to the secondary markets.
  • Second, you have a lot of research to do before you need to make a decision: news sources, the SEC's filing archive of Groupon's filings (source material!), asking your friends about their Groupon experiences, etc.
  • Third, can you even get shares, and if so, what is your personal risk profile and will it allow you to pursue shares?
Let me briefly address part 1 of the third bullet: do not seek pre-IPO shares, unless you like holding on for 180 days post-IPO due to the lock-up period. Brokers who provide pre-IPO shares to investors don't like it when the shares are sold instantly--doing so will likely deep-six your chances of getting future pre-IPO allotments. Instead, hold out for the first of the secondary market shares that trade on the day (morning) of the IPO. If you catch the secondary market at the sound of the starter pistol, your shares should be as inexpensive as any post-IPO shares can possibly be.

The second bullet point is very important: do your research.  Does this company have growing power?  Will the market reward them for a job well done (GOOG, anyone?) or will the shares plummet soon upon arrival? Is the company profitable, or look like they could be?  These, and many others, are questions you should be comfortable with discussing before plunking down cash on the barrelhead.


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