Felix Salmon

Dan Primack gives three reasons why Groupon isn’t going to raise its IPO price by a buck or two today. The most important is #2: Groupon really wants to allocate shares to people who aren’t going to simply flip them on day one. If it can use a slightly lower share price to attract long-term buy-and-hold investors, it’ll happily do so.

But that’s a big “if”. And in fact keeping the offer price low will only serve to increase the size of the first-day pop, and therefore maximize the incentive for investors with an IPO allocation to flip their shares rather than hold onto them.

My feeling is that there are three other, more important reasons why Groupon would keep the IPO price low.

The first is that first-day pop. A lot of people think of such things as an indication that the IPO was mispriced, and that the IPO’s bankers left money on the table. But for Groupon, the single most important feature of this IPO is that it be seen to be a success. Groupon has had worse press in the past few months than any pre-IPO company I can think of — it’s been absolutely hammered. It’s worse even than Glencore! The IPO is Groupon’s opportunity to demonstrate that there’s still a lot of demand for equity in a high-flying, fast-growing discounter. And the best way to do that is to get lots of headlines about the big rise, in percentage terms, that the IPO saw on its first day of trading.

Secondly, there’s the small float. Groupon’s only offering 30 million shares, which means that a dollar rise in the IPO price would get it less than $30 million in new money. That’s a rounding error for Groupon.

Finally, and most importantly, Primack’s article is based on the premise that “oversubscription typically leads to a price range increase, particularly at a company like Groupon that could really use the cash”. But Groupon has been shouting until it’s blue in the face that it doesn’t need the IPO cash, that it’s fine on the cash front, that the IPO is just a way of going public, and is not really about the money-raising at all.

If Groupon were to raise its IPO price now, that would certainly be seen as an indication that it does need that extra $30 million or $60 million after all. And that’s the last message that Groupon wants to send to the market, on this of all days.

So expect Groupon to price at the top of the indicated range of $16 to $18 per share. And then to have a healthy pop when it opens for trade tomorrow morning. That’s what Groupon’s hoping for, anyway.

Update: Groupon prices at $20. So much for my theories.