The real deal? Groupon files for public offering
NEW YORK |
NEW YORK (Reuters) - Online daily deal site Groupon Inc filed for an initial public offering, hoping to capitalize on the biggest investor stampede into Web start-ups since the dotcom bubble burst a decade ago.
The company filed on Thursday to raise up to $750 million in its IPO, an offering that has been widely speculated about for months and will be closely watched as a barometer of whether valuations have become too rich.
Other Internet companies including LinkedIn Corp and China's Renren Inc have already had strong IPO premieres, and anticipation is building toward a fever pitch for potential offerings of Facebook and Twitter. Pandora, a Web radio company, raised its IPO size to up to $141.6 million on Thursday -- 40 percent more than estimates.
Still, some doubt whether the buzz surrounding the new generation of Web companies is justified, warning that the current hype is all too reminiscent of the atmosphere prior to the dotcom bust in 2001.
Groupon, in particular, has been called into question by critics who say its business -- essentially a coupon service -- can be easily replicated by both startups and existing Web powerhouses. Google has already begun such a service.
"I think investors will go for this one," said Ryan Jacob, chairman and chief investment officer of Jacob Funds, which includes the Jacob Internet Fund. "Whether or not it's worth the valuation it comes at is still an open question."
Groupon itself, in the filing, cautioned that it has incurred losses ever since it was started 2-1/2 years ago, that its technology may not be up to the task of handling demand for its services, that its expenses are bound to rise, and that the daily deals market may not even continue to grow.
"As with any business in a 30-month-old industry, the path to success will have twists and turns, moments of brilliance and other moments of sheer stupidity," Groupon Chief Executive Andrew Mason, 30, said in a letter to potential stockholders that was attached to the filing.
Thursday's filing did not specify the number of shares to be sold in the IPO, the price range, or the exchange, though it did say the shares would trade under the symbol "GRPN." It also said the $750 million figure is preliminary and may change.
Founded in November 2008 by Mason, a young and brash entrepreneur who majored in music at Northwestern University, Groupon offers members discounts on everything from meals at restaurants to sky-diving excursions. The "group" part of the name refers to the fact that many of the deals are activated only when a certain number of people sign up for them.
Discounts often run from 50 to 70 percent; for example, on Wednesday it was offering $20 worth of T-shirts at Old Navy, a Gap Inc chain, for $10.
Groupon, which currently has 83.1 million subscribers and deals with nearly 57,000 local merchants in 43 countries, is backed by some of the top venture capital firms in Silicon Valley, including Andreessen Horowitz, Battery Ventures, Greylock Partners and Kleiner Perkins Caufield & Byers. T. Rowe Price Group and Fidelity Investments also own a stake, among others.
At one point, Groupon caught the eye of Google, which unsuccessfully approached the company with a $6 billion takeover offer in December, a source told Reuters at the time. Today, Google, Facebook, LivingSocial and a clutch of other Web companies are offering their own coupon programs.
"Groupon's had a lot of success in its early stages, but the model of group buying has limited barriers to entry and it's being replicated," said BCG Partners analyst Colin Gillis.
Whether Groupon can turn its popularity into profit is another matter. The company takes a commission from the merchants that provide the services, and in the first three months of the year its revenue totaled $644.7 million. But it incurred a net loss in the period of $146.48 million, as it spent heavily to expand, both by acquiring customers and by signing up merchants.
"The growth is astronomical and clearly a lot of the money they're making is being plowed right back in the company," said Jacobs. "The biggest concern is going to be is this kind of growth sustainable with a lot of new entrants in the market and coming into the market, with one obviously being Google."
While Groupon is enjoying the spotlight shining on other hot social media companies such as Zynga, it requires resources those companies don't -- a huge sales staff to enlist merchants and handle customer service.
Indeed, Groupon disclosed in its filing its staffing ballooned to more than 7,000 employees at the end of March from 37 in June 2009.
In April, a source told Reuters that Groupon could raise as much as $1 billion in the IPO, which could value the fast-growing daily deals site at $15 billion to $20 billion.
Underwriters on the IPO are Morgan Stanley, Goldman Sachs and Credit Suisse.
(Additional reporting by Clare Baldwin, Phil Wahba and Alexei Oreskovic; Editing by Gary Hill and Tim Dobbyn)
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