Tech stocks for Groupon and Living Social are sure to be hot at their initial public offerings. But when it comes to these tech stocks, it's important to know the difference between the two companies.
Fred Prouser / Reuters / File
News broke at the end of this week that social offers site Living Social was signing with Deutsche, Bank of America and JPMorgan to underwrite an initial public offering. This follows Groupon's filing which included a risk disclosure section that read like late-career Edgar Allen Poe.
While there is no question that these deals will be red hot, at least initially, there is a huge gap in understanding how these companies differ from each other. The differences are important, they will ultimately determine valuation and market share.
The numbers and time-frames I use below are approximate but the points I make here are vital:
1. The first thing you gotta know is that Groupon is the biggest and most creative, they essentially invented this game, taking the Daily Candy email blast model and turning it into an interactive coupon business from just an advertising business.
2. Groupon's massive pre-public valuation is based on this first mover advantage (first, biggest, best, most mindshare, most revenues, widest geographic presence, etc).
3.. Living Social, while second in the game, is no also-ran. It is backed by serious venture money, a large chunk of which comes from Jeff Bezos and Amazon. No one understands e-commerce like Bezos and his guys.
4. Groupon is fortunate in that merchants now use its name as a verb (I'm going to Groupon a new foot massage offer this weekend". Google understood the advantage that kind of thing gave them during the Search Wars and they encouraged it.
5. Where things begin to get tricky, however, is that Groupon has only been able to market and expand the way it has because of the approximately 60 day wait time between when a merchant's offer is run and when they pay cash to the merchant. They have two months to use that money to hire, build, advertise, bring on new merchant customers etc. But merchants tend to be moms and pops, Main Street customers who would love to get paid sooner.