Will Groupon Make a Deal With Its Own Stock?

There are few companies I admire these days more than Groupon. While it seems like barely a week passes before another competitor jumps in (such as AT&T's deal-of-the-day efforts), the very idea of a business based on social commerce intrigues me.

Unless you live under a rock, you know Chicago-based Groupon is a pioneering online deal broker. The company, whose name combines "group" and "coupon," promotes daily discounts on stuff to do, eat, see, and buy in more than 500 markets worldwide.

The privately held company doesn't disclose its financials (which explains the wide range of speculation about its revenues online). But it claims it's been profitable in June 2009, just seven months after its launch. And in a story last summer, Forbes described it as "the fastest growing company ever."

Late last year, Groupon reportedly spurned a $6 billion acquisition offer from Google (Nasdaq: GOOG). Company insiders, including CEO Andrew Mason, apparently think they can garner more revenue on their own, and plan to do so with an IPO in the next six months or so. {UPDATE: See Groupon IPO Adds to Net Bubble 2.0}.)

If you believe the latest reports, Groupon's IPO could generate as much as $20 billion, if not more. To be sure, there are analysts and investors who contend the company is growing too fast and warn that it's overvalued.

But what if the company is intentionally overvaluing itself for one of the biggest events in stock market history? Could Groupon issue a Groupon for its common stock? Could this be a lesson in business strategy and valuation in addition to marketing?

None of that may be as farfetched as it seems. Everyone knows companies can issue classes of common stock for particular groups of investors. Berkshire Hathaway, (NYSE: BRK) for instance, issues Class A and Class B shares, with different sets of voting and conversion rights for each. It's also common for companies to customize classes of stock so a set body of shares has preferred voting privileges.

I could envision a similar arrangement at Groupon. I admit it's just speculation. I have no inside knowledge about the arrangements Groupon is making with either Goldman Sachs (NYSE: GS) or Morgan Stanley (NYSE: MS), the two firms likely to lead the IPO.

But it's a safe bet the majority of stock offered will be in the form of preferred stock and (what I assume to be) Class A common stock sold to a primary audience, specifically, institutional and other major investors with a deep understanding of finance. Then, to show that Groupon can be applied to any business model -- including its own --0 the company could offer a specific class of common stock with limited conversion and voting rights explicitly for sale to the millions of people who subscribe to the site's daily deals.

If you're thinking, "Shmarak, you're staring at your computer too much," I won't argue. But hear me out.

I'm assuming Groupon will need some sort of retail partner for this new stock class. For the sake of this discussion, assume Groupon partners with a retail brokerage firm that could issue Groupon stock as a deal of the day. Let's say it offers $250 worth of Groupon common stock for $125.

Hundreds of thousands of investors, including people like me, would take that deal. Groupon gets 50 percent of the revenue ($62.50), and the retailer (in this case, the retail broker) would get the other portion. The retail broker is going to make a killing based on the number of people who want that deal, right?

Groupon will already be in the news when its IPO becomes reality. The company will gain notoriety, press coverage, social media airspace, and discussion. That could drive more investors to buy, not the discounted stock, but Groupon's Class A offering, driving overall corporate valuation through the roof.

To be clear, I am not a stock expert, nor am I privy to the ethics and principles guided by trading. If someone in the community can share some insights on my ideas, I'm all ears. But you have to admit that it's an interesting concept... and that companies like Groupon are willing to defy convention and take on risk, making potential investments quite attractive.

Would you take the risk if given the opportunity? It's just a hypothetical situation... or... is it?