Stephen Foley: Groupon share offering prompts shopping spree

 

Outlook: Two ways to stoke a buying frenzy: you can make something so cheap it's a no-brainer, such as when Groupon offers nose jobs for $100 or some such, and causes a customer stampede; or you can make something so scarce that people will pay through the nose for it – like when Groupon sells its own shares to the public.

The 50 per cent pop in the Groupon share price in the first hours of trading yesterday reflects the fact that barely five per cent of the company has been floated more than it signals enthusiasm for the fundamentals of this business. Investors lucky enough to get an allocation of shares could flip two-thirds of their holding to secondary-market buyers and have the rest of the stock on their books for free. It doesn't matter to them whether Groupon becomes a lasting business.

The company will correct this disgracefully narrow free-float over time, but, as LinkedIn's share price plunge this week showed, that will be another downward drag on a stock that can only defy gravity for so long.

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