Can Groupon Be The White Knight For Stocks?

The Groupon IPO. The one everyone has been waiting for. This morning, some details were released about about the company's second quarter, as it had an amended filing with the SEC to get rid of its accounting metric, known as "adjusted consolidated segment operating income,” or ACSOI. “While we track this management metric internally to gauge our performance, we encourage you to base your investment decision on whatever metrics make you comfortable,” Andrew Mason, Groupon's chief executive, said in a letter to investors in the prospectus. Many investors and analysts questioned the practice of ACSOI, but with Groupon getting rid of the metric, it is still showing that revenues and subscribers are soaring after it got rid of ACSOI. The company reported second quarter revenue of $878 million, up 36% quarter-over-quarter, and 906% year-over-year. Still, the company had a net loss of $108.9 million in the second quarter. This is down 26% from the first quarter, but it still shows the company is losing money, despite increasing subscribers 39% from the first quarter. It now has 115.7 million subscribers as of the end of the second quarter. With the equity markets crashing over the past two weeks, the IPO market is closing, slowly. Groupon, Facebook, LivingSocial are all set to come public in the next couple of years, and LinkedIn LNKD already is. If Groupon comes public before the end of the year, it could boost investor sentiment, as investors have been clamoring for this name. It got so bad during the process, that Lloyd Blankfein himself went to Chicago to talk about Goldman Sachs being the lead underwriter on the IPO. With all of its quirks, faults, and other unusual ways of running its business, there is no question that Groupon has proven to be a disruptive company. It spurned an offer from Google GOOG for $6 billion, and will probably go public at a valuation of somewhere around $25 billion. The company is adding employees, one of the few companies in the U.S. hiring, and the growth is beyond phenomenal. Companies like Amazon AMZN took years before proving to be profitable, but CEO Jeff Bezos begged investors to believe in the story, and there is speculation that Mason is that kind of leader. One thing Groupon has going for it, is that although gross margins shrank in the quarter, the company grew its free cash flow to $29.8 million, up over 400% from a year ago. Groupon may be the white knight that stocks are looking for. Just don't expect a Groupon in your email getting 60% off the IPO price. ACTION ITEMS:

Bullish:
Traders who believe that Groupon's IPO will be incredibly successful might want to consider the following trades:

• Consider alternate companies that are in the same space. Local.com Corp. LOCM could benefit from a Groupon IPO, as could Google GOOG, with more value being assigned to its Google Offers unit.

Bearish:
Traders who believe that Groupon's IPO will fail may consider alternate positions:

• Groupon will likely come public at obscene valuations. If the market is still very volatile then, Groupon could experience sharp declines, as investors have no patience for companies that do not beat quarterly estimates.
  
  

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