WINDERMERE, Fla. (Stockpickr) -- This week, Chicago-based daily deals site Groupon is kicking off its roadshow, during which the company will be pitching its IPO shares to institutional investors and large traders.
During a road show, company executives and management try to convince savvy market players who operate mutual funds and hedge funds to buy their stock. They present their firm's growth strategies and financial information to give investors a better understanding of why the company needs to go public and how it could be a solid investment opportunity.
For example, it's been reported that one of the things that Groupon will be promoting in its roadshow is the company's Groupon Now 2.0 initiative, a mobile app service that delivers deals based on a user's location.
Groupon's IPO deal is expected to be priced on the evening of Thursday, Nov. 3, and it's slated to begin trading on Friday morning on the
under the proposed symbol "GRPN." Groupon is seeking to sell 30 million shares (less than 5% of the company) at a price of $16 to $18 a share, or $540 million, excluding an over-allotment option that underwriters might not decide to exercise.
Groupon's market value would be around $11.4 billion following the IPO, less than half the $25 billion that the company had anticipated in June. That said, even at $11.4 billion, Groupon is still coming to market above the $6 billion buyout offer that
reportedly offered the company in 2010. At close to $12 billion, Groupon is valued at eight to nine times its projected 2011 revenues.
Once Groupon hits the tape, the stock could jump sharply if traders want a piece of the hot daily deals and social networking player. If a strong rally does indeed play out for Groupon on its IPO day, then a number of similar stocks could be good plays ahead of its IPO. It also doesn't hurt that a number analysts seem to be very bearish on the stock, just like they were on
before that stock soared on its debut.
Here's a look at a
One way to get ahead of the Groupon IPO is to buy some shares in
, an externally managed, non-diversified closed-end management investment company. This stock could be a great buying opportunity in front of the Groupon IPO, with shares off by 5% so far in 2011.
GSV Capital is the first publically traded security that enables investors to participate in the growth of the world's most exciting and growing companies -- before they go public. GSV's current investments include
and, of course, Groupon. Twitter is its largest holding, Facebook is its second-largest holding, and Groupon is its eighth-largest holding.
GSV Capital could be a viewed as a lower-risk way to play the Groupon IPO since the company is so diversified in its investments, with multiple startups. That said, with Groupon being its eighth-largest holding, a strong IPO from the daily deals player could easily spark a big spike for GSV Capital.
The way I would play GSV Capital ahead of the Groupon IPO would be to simply buy the stock if it breaks out above some overhead resistance at its 50-day
of $14.42 to $15 a share on
. Look for any up-volume days that are tracking in close to or above the three-month average volume of 91,600 shares. If that breakout triggers and it comes with volume, I would target a run back toward $17 a share or possibly even higher.
Keep a tight mental stop on this play since we are looking for just a quick trade if market players pile into this name ahead of the Groupon IPO. Another way to play GSV would be to buy it near some previous support at $13 to $12.72 a share with a mental stop just a few percentage points below those levels. This way you can buy on weakness and anticipate the breakout if it does trigger once Groupon goes public.
Probably the best stock to trade in front of the Groupon IPO is
, which informs millions of subscribers worldwide, as well as millions of Web site users, about the best travel, entertainment and local deals available from thousands of companies. This stock is off by over 25% so far in 2011.
Travelzoo has 24 million worldwide subscribes that it sends out weekly emails to regarding sponsored vacation and travel deals. Last summer, the company launched a Groupon competitor that offered local deals. Back in June, Benchmark said that Travelzoo could get a boost from a Groupon IPO. The firm said Travelzoo's Local Deal competes directly against Groupon and could generate $93 million in gross revenue in 2011.
One of the other reasons to play Travelzoo in front of the Groupon IPO is that the stock is so heavily shorted. The current short interest as a percentage of the float for Travelzoo is a whopping 55.7%. This stock could easily see a massive short-squeeze if the Groupon IPO catches fire.
The way I would trade Travelzoo would be to buy the breakout once the stock takes out $34 a share with heavy volume. Look for volume that's tracking in close to or above its three-month average action of 1.09 million shares. Another way to play this would be to buy it off of weakness near $28 a share and anticipate the breakout. Either way, use a tight mental stop a few percentage points from where you buy it in case we don't see a pop in the stock off the Groupon IPO.
I also featured Travelzoo recently in "
Another Groupon IPO play that to put on your radar is
, which provides solutions that form an online network connecting reservation-taking restaurants and people who dine at those restaurants. This stock has struggled so far in 2011, with shares off by around 25%.
Earlier this year, OpenTable launched a service called Spotlight that allows restaurants to sell Groupon-like restaurant coupons as weekly deals through its Web site. The great part about this service for OpenTable is that the company retains half of the revenue from the sales. This could easily attract traders to get long some OPEN ahead of the Groupon IPO, and just like Travelzoo, OpenTable is another heavily shorted stock.
The current short interest as a percentage of the float for OpenTable is an extremely large 40.3%. It's also worth pointing out that the bears have been increasing their bets from the last reporting period by 19.6%, or by about 1.4 million shares. With this large of a short interest, OPEN could easily see a
if the Groupon IPO takes off.
The way I would play this stock in front of the Groupon IPO would be to buy it once it breaks out above $53 a share on strong volume. Look for volume that's tracking in close to or above its three-month average action of 1.49 million shares. You could also buy the stock off weakness near $48 to $47 a share. Make sure to have tight mental stops in place to protect your capital. This stock could easily run up to $58 or higher if we see a Groupon-inspired short squeeze.
Open Table was highlighted on a list of
If you're looking for a speculative penny stock play in front of the Groupon IPO, then take a look at
, which operates as an Internet search advertising company that enables businesses and consumers to find each other and connect locally. The bears have trashed this stock in 2011, with shares off by over 55%.
This company is extremely speculative, to say the least, since the stock trades at around $2.60 a share. That said, the firm just entered the daily deals space through its acquisition of Groupon-like startup Screamin' Daily Deals in July. The startup is estimated to have generated -- unaudited -- revenue of $2.4 million in 2010 and $4.4 million during the first half of 2011.
Local.com also just released its new mobile application for its Spreebird daily deals business. The apps allow its customers to search, buy and claim Spreebird deals on their cell phones. Obviously, Local.com is quickly moving into Groupon's space, so with just a $58.3 million market cap, this stock could easily double if traders front run the Groupon IPO with this speculative name.
The way I would play this stock in front of the Groupon IPO is to buy it once it
above $2.73 to $3.07 a share on heavy volume. Look for volume that's tracking in close to or above its three-month average action of 276,800 shares. You can also buy this off weakness just below its 50-day moving average of $2.55 and simply anticipate the breakout. Either way you trade it, make sure you have a tight mental stop in case the Groupon IPO isn't a hit.
The reason I think this speculative stock could easily double off a solid Groupon IPO is that Local.com has a very small tradable float of 21.89 million shares and a reasonably high short interest of 11.2%. If we see a short-covering rally kick off, then look for a big move in this stock in the coming days.
Other Social Networking Stocks
One more way to play the Groupon IPO would be to jump into some of the other social networking names and look for a spike off a successful showing for Groupon. I would take a hard look at some names such as
( ACOM). All of these names could easily rack up nice trading returns if the Groupon IPO is a success. With that in mind, I would simply look to trade any intraday strength as we get closer to the Groupon IPO.
Two more publicly traded stocks that operate in the daily deals space are
, which is backing Living Social, and
, which has Google Offers.
To see these stocks in action and for more stocks to play the Groupon IPO, including
(SOHU), check out the
portfolio on Stockpickr.
-- Written by Roberto Pedone in Winderemere, Fla.
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At the time of publication, author had no positions in stocks mentioned. Roberto Pedone, based out of Windermere, Fla., is an independent trader who focuses on stocks, options, futures, commodities and currencies. He is also an outside contributor to Beconequity.com and maintains the website Maddmoney.net, which he sold to Blue Wave Advisors in 2008. Roberto studied International Business at The Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany.
Roberto Pedone, based out of Windermere, Fla., is an independent trader who focuses on stocks, options, futures, commodities and currencies. He is also an outside contributor to Beconequity.com and maintains the website Maddmoney.net, which he sold to Blue Wave Advisors in 2008. Roberto studied International Business at The Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany.