The Groupon Name Recognition IPO Bump

Groupon MyCityDeal
Image via Wikipedia

There have been a number of good posts theorizing about Groupon’s sustainability and upcoming IPO. @lance has a nice collection of links with his Groupon S1 post. One of the areas that I haven’t seen much commentary on is the bump IPOs get when they have strong consumer name recognition. We saw this recently with LinkedIn (NYSE:LNKD) and a few years ago with Constant Contact (NASDAQ:CTCT). The idea is that if the company is known by large number of potential personal investors, even without knowing the fundamentals of the business, there is going to be more demand than for most companies that go public.

Constant Contact was a great example of this a few years ago. Constant Contact did an amazing job of viral marketing, which is unusual in the B2B SaaS world, by having their powered by logo in the footer of billions of emails. When they did their roadshow and talked to investors, during the process of going public, more people had heard of them than a typical company. As Warren Buffet has said he likes to invest in things he understands, Constant Contact is easy to understand (small business email marketing) and investors have been exposed to the brand (the footer of their local small business and non-profit emails).

Here are companies that IPOed in May according to Renaissance Capital’s Growth Stories Lead IPO Surge in May 2011:

  • LinkedIn
  • Yandex
  • Jiayuan.com
  • RPX Corp
  • Freescale
  • Lone Pine
  • China Zenix
  • Spirit Airlines

Which one performed the best on opening day? Which ones have you heard of and used personally? LinkedIn is the only one for me personally. In the same manner that LinkedIn and Constant Contact had much more demand than expected (based on the opening price of the stock shooting up), I believe we’ll see the same for Groupon due to casual, personal investor buying the stock because they’ve used the company, and not because of the underlying fundamentals.

What else? Do you believe the name recognition theory causing certain IPOs to outperform others?

3 thoughts on “The Groupon Name Recognition IPO Bump

  1. I absolutely think you are correct. The sad thing is that these are mostly uninformed semi-vicarious investors. The difference between Linkedin and Groupon is that Linkedin shows a true value and profitability. You can understand the business value and it’s future upside. It is less “bubble” then a huge IPO for Groupon. A huge IPO for Groupon would truly be a hype based “bubble” buy. They are killing the market they are serving… that will catch up with them and the deals will get crappier as consumers get dis-enchanted.

    Not to mention they are loosing tons of cash (small detail).

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