The Best Way to Play the Groupon IPO
After more false starts than a visiting football team, Groupon's IPO is finally on track.
The daily-deals leader will have to settle for a smaller deal than it had originally envisioned, but everything is falling into place. Groupon should go public by the end of next week.
Investors who are concerned by Groupon's valuation and lack of profitability aren't necessarily out of luck. We live in a bandwagon-hopping world, and many already-public companies have already embraced the Groupon model of daily flash sales. Why not? Consumers are looking for local bargains, and merchants are willing to split the price of the discounted vouchers with the websites that help them sell the marked-down experiences.
Let's go over a few of the dot-com smarties that are all over this niche.
AOL (AOL) ( the publisher of DailyFinance) was one of the first companies to jump on this trend, transforming its Wow.com domain into a flash-sale website last year. It didn't last, and now Wow.com is directing deal seekers to check out the hyperlocal deals coming to AOL's own Patch.com.
Google (GOOG) is beginning to throw some weight behind its Google Offers initiative, even going as far promoting a daily deal through its homepage at one point this summer.
Amazon.com (AMZN) is taking a different tack. It acquired national daily-deals pioneer Woot.com a couple of years ago, and it has participated in two different financing rounds to bankroll Groupon rival LivingSocial. Why create from the ground up, when it can simply buy into those that are already successful?
When Groupon, LivingSocial, and countless other daily dealers began to spike in popularity, it shook up websites that specialize in certain industries. It's hard to ignore Groupon's success selling half-priced restaurant outings, spa treatments, and hotel getaways if you swim in these same waters.
Travel-deals publisher Travelzoo (TZOO), dining-reservations leader OpenTable (OPEN), and wedding-planning specialist XO Group (XOXO) all announced Groupon-like initiatives during the summer of 2010.
The moves would be incremental. Instead of simply offering subsidized travel bargains in its weekly Travelzoo Top 20 missives, Travelzoo would begin offering vouchers for touristy experiences. Rather than simply seat foodies through its namesake website and electronic reservations book, OpenTable would offer discounted eats for those willing to prepay.
Travelzoo and OpenTable were two of the market's hottest stocks after hopping on Groupon's coattails, though that coat has been through a lot now that Groupon's own valuation has been slashed by more than half.
Knowing When to Hop On and Off the Bandwagon
Earlier this month, I went over a few publicly traded companies cashing in on the Facebook craze. Next week's Groupon IPO will be different, since the market has already started to sour on the cutthroat nature of daily-deals providers.
However, investors should keep an eye on the participants, especially the specialists. Travelzoo, OpenTable, and to a lesser extent The Knot.com parent XO Group should move higher or lower a week from Friday based on the success or failure of Groupon's IPO.
Just because your IPO has been scaled back doesn't make the event any less influential. Invest as carefully as you select your Groupon offers.
Longtime Motley Fool contributor Rick Munarriz owns no shares in any of the stocks in this article, except for Travelzoo. The Motley Fool owns shares of Google. Motley Fool newsletter services have recommended buying shares of Google, Amazon.com, OpenTable, and Travelzoo.