IPO Guru: Why the Frantic IPO Pace Heading into the New Year
Dec. 14, 2011
Although 2011 has been a disappointing year for initial public offerings, several companies aim to go public this week making it the busiest IPO activity since 2007.
So what’s going on?
“There is a very large backlog of companies wanting to IPO and the November 4 Groupon IPO turned the light back on IPOs,” says expert IPO analyst Francis Gaskins. Google his name – he’s a widely quoted IPO guru online, on television and in newspapers.
“The IPO light was turned off by the market’s decline in August,” he explains.
You might recall the stock market took a nosedive over worries of the federal government’s debt. At this writing, Standard & Poor’s 500 increased by 8 percent in the last nine weeks.
Which companies stand to benefit?
“This week there are five energy-related IPOs, two social networking IPOs (Zynga & Jive Software), two industrial companies plus Michael Kors, which we like very much, and one IT company,” Mr. Gaskins explains.
In 2011 until now, $35 billion has been raised in 115 IPOs. That’s a decrease from 2010 — 154 IPOs netting an aggregate $39 billion.
Both years are considered to be subpar. Normally, you could expect 25 percent more dollars to be raised among about 250 IPOs.
“The IPO market is leaving 2011 with a decided bang,” he says.
So what about the New Year?
“As long as the averages don’t tank we’ll continue to have a healthy IPO market when it begins again sometime in January,” adds Mr. Gaskins.
(Note: I’m proud to say Mr. Gaskins and I are both members of a select roundtable of consultants, Consultants West, www.consultantswest.com.)
From the Coach’s Corner, Mr. Gaskins’ site: IPODesktop.com.
“In the business world, the rearview mirror is always clearer than the windshield.”
-Warren Buffett
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Columnist Terry Corbell is a business-performance consultant and profit professional. Click here to see his management services (many are available online). For a complimentary chat about your business situation or to schedule Terry Corbell as a speaker, why don’t you contact him today?
Daily Deal Sites and Pricing Principles – What’s Sustainable and What Isn’t
Updated - May 9, 2013
Whether you’re an investor, small-business advertiser or even a customer, there continue to be red flags about daily deal sites.
The most recent is Living Social after it was hit with a password breach by hackers affecting 50 million accounts.
There are continual red flags about Groupon. True, Groupon just reported a 7.5 percent increase in quarterly revenue. But it still lost $4 million. In Q1 2012, it lost $11.7 million. This is in addition to another red flag after the daily-deal company first reported a $42 million loss for Q4 in 2011.
So, investors keep propping a bad idea. Even though the losses are narrowing, it still bodes poorly for investors and small-business advertisers. Advertisers continually lose money on it coupon deals, which doesn’t promote profitable repeat business for them. Sooner or later all stakeholders will wise up, but perhaps too late.
Since the site’s stock price began plummeting, Groupon’s founder Andrew Mason and founding investors Brad Keywell and Eric Lefkofsky have lost about 50 percent of their multi-billion-dollar holdings.
Mr. Mason was fired in February 2013, and was replaced with co-CEOs: Co-founder and chairman Lefkofsky and vice-chairman Ted Leonsis.
The decline means Groupon’s image has greatly diminished – as an advertising medium, employer, as a takeover target or acquirer.
Not to be gauche, this portal has been warning about daily-deal red flags, such as Groupon and LivingSocial. Additionally, results from three Rice University studies serve as warnings for the industry, its investors, its advertisers and consumers.
Indeed, in 2011, the third Rice study by a management professor, Dr. Utpal M. Dholakia, appears to draw such conclusions.
The study caught my eye because this business portal has long maintained it’s dangerous to sell products at the cheapest price in the marketplace vis-à-vis focusing on value and customer service. (See What are the Secrets for Success from Advertising?) Companies that focus solely on price attract the smallest segment of consumers – 18 percent – the least-desirable customers who make buying decisions solely on price. Such consumers are not loyal. Additionally, they’re the biggest complainers and more likely to return products.
But let’s consider Rice’s research.
For two years – from August, 2009 to March, 2011 – Dr. Dholakia’s third daily-deals study examined the outcomes for 324 businesses advertising with five daily-deals sites in 23 U.S. cities.
He concluded:
- 55.5 percent of businesses made a profit.
- 26.6 percent lost money.
- 17.9 percent broke even.
“Although close to 80 percent of deal users were new customers, significantly fewer users spent beyond the deal’s value or returned to purchase at full price,” he concludes. “48.1 percent of businesses indicated they would run another daily deal promotion, 19.8 percent said they would not, and 32.1 percent said they were uncertain.”
His study drew other warnings.
“Overall, our findings lead us to conclude that there are relatively few points of differentiation between the daily deal sites, making it harder for any one site to stand out from the others,” he adds.
More dire conclusions by Dr. Dholakia:
- Only 35.9 percent of customers returned to pay full retail price.
- Many advertisers aren’t loyal to their original daily deal sites – 72.8 percent of businesses will consider advertising on different sites.
- Just 35.9 percent of restaurants/bars and 41.5 percent of salons and spas will continue to run such promotions.
“The major take-away from the study is that not enough businesses are coming back to daily deals to make the industry sustainable in the long run,” Dr. Dholakia says. “And our results from three studies and close to 500 businesses surveyed show that the deals are nowhere close to the rates of financial success for participating businesses that some companies claim to be having.”
“The businesses that we see spending their marketing dollars on daily deal sites have dramatically cut their advertising budgets,” Dr. Dholakia warns. “This is a problem for businesses, because they’re not building their brand when they offer discounted prices for their products and services. Only about 20 percent of customers using daily deals return to businesses to buy at full price; customers acquired through other programs typically have much higher rates of full-price repurchases.”
Dr. Dholakia has a warning for consumers.
“If you’re going to purchase a voucher, make sure you use it before it expires,” he says. “Right now the getting is still good for the consumer, but that isn’t going to last much longer as these steep discounts won’t and can’t last very much longer.”
Not convinced? Consider another writer’s post: Why Groupon Is Poised For Collapse. I don’t know why investing in daily-deal sites or advertising with them makes sense.
A business will profit more from best-practices in traditional marketing, a strong Web site using search-engine optimization, and social media. Forget trying to advertise as a low-cost leader. It won’t work.
From the Coach’s Corner, here are best-practices in marketing:
- How to Win Your Major Marketing Campaign
- Strategies for Maximum Customer Loyalty, Profits
- The Seven Steps to Higher Sales
“What kills a skunk is the publicity it gives itself.”
-Abraham Lincoln
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Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.