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Groupon Opens Up 40% in Public Debut

Groupon story updated with analyst commentary

NEW YORK (TheStreet) -- Groupon (GRPN) opened at $28 a share on the Nasdaq on Friday, soaring 40% from its initial offer price. Shares continued to hover around the same price during afternoon trading after climbing as high as $31.34.

The pop in the stock price comes despite widespread criticism of the daily deals site after shake-ups among its management team, scrutiny over its accounting metrics and concerns about its long-term ability to turn a profit.

On Thursday night, Groupon priced shares of the offering at $20, above the range of $16 to $18 it had initially sought. The company netted $700 million in the stock sale, valuing the daily deals site at close to $13 billion.

Groupon CEO Andrew Mason

Demand for Groupon's shares may be driven by a lack of supply -- it is putting less than 5% of its shares on the market, compared to the average tech company, which offers up around 20% of its shares, according to Dealogic.

"The price dynamics in these low float deals make the stock trade up in the short term, but it's a long-term risk," said Josef Schuster, the founder of IPO research firm IPOX Schuster. "We saw this during the 90s but investors seem to be repeating this."

Stanley Crouch, Chief Investment Officer of Aegis Capital, agreed the offering's small float contributed to its initial surge.

"The IPO was very engineered and very artificially crafted," he said. "The bankers came out with the right balance and they created demand without overwhelming the market."

Despite a strong opening on Friday, the company still faces obstacles ahead including competition from tech giants like Amazon (AMZN) and Google (GOOG). The deals space has few barriers to entry and more than 600 entrants, according to research firm BIA/Kelsey.

Founded in 2008 by CEO Andrew Mason in Chicago, Groupon has expanded rapidly to more than 10,000 employees by offering discounts on services like yoga classes and massages. Revenue swelled to $312.9 million in 2010, compared to $14.5 million in the year before.

Groupon is one of the year's most closely watched IPOs, as it could set the stage for other Internet offerings like Zynga and Facebook and give investors a glimpse about how buzzy private Web companies will fare in the public markets.

Demand for Groupon's offering may also be a product of pent-up enthusiasm for Internet offerings.

Only four Internet-related companies have priced since July, according to Hoovers' database.

"People are still hungry for Internet stocks," said Lee Simmons, an analyst at Hoovers. "With the slowdown we've seen in the fourth quarter of this year, this is the biggest IPO to come out of the gates, if not the sexiest."

Internet IPOs this year have been a mixed bag.

LinkedIn (LNKD) shares more than doubled following its May IPO. Shares have cooled since then, falling 9% after the company reported its first loss since going public. The business social network also said this week it plans to sell an additional $100 million of stock.

Online music site Pandora (P) shares have fallen nearly 13% since the company's June IPO and the stock is trading at slightly lower than its $16 offer price.

--Written by Olivia Oran in New York



>To follow the writer on Twitter, go to http://twitter.com/Ozoran.

>To submit a news tip, send an email to: tips@thestreet.com.

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