UPDATE 3-Groupon delays IPO, waits out market turmoil

Tue Sep 6, 2011 6:50pm EDT

Related Topics

* Groupon to wait before launching roadshow -- sources

* Joins Zynga, others in postponing market debuts

* Also faces regulatory and investor questions (Adds Zynga IPO delay, details on industry, second source)

By Alistair Barr

SAN FRANCISCO, Sept 6 (Reuters) - Groupon has put its IPO on hold for at least a few weeks, hoping to ride out global market turmoil while dealing with regulatory questions surrounding its highly anticipated public float, two sources with knowledge of the deal said.

The daily deal company, which had intended to launch into the final phase of its initial public offering in mid- to late September, joins Zynga and other would-be market debutantes that have postponed flotations as the dismal outlook for developed economies hammers stock markets.

Since Groupon filed for a $750 million IPO in June, some on Wall Street have also questioned Groupon's financial disclosures, including its use of a metric that excludes marketing and other expenses from profit calculations. Others fear the company's growth is slowing in North America.

To hit an unofficial deadline to debut this month, the company would have had to launch a roadshow to attract potential investors this week or next.

The Wall Street Journal reported earlier on Tuesday that Groupon had scheduled a roadshow for next week but has called that off now.

The company is not canceling its IPO, but is reassessing the timing of an offering on a week-by-week basis, the sources said on condition of anonymity because the IPO process is not public.

Groupon Chief Executive Andrew Mason drew fire after the leak of an August memo to employees that lashed out at the daily deal site's critics. In the internal memo, Mason also talked about August revenue growth and reaffirmed his confidence in the business. [ID:nN1E77O22B]

The company has received questions from the Securities and Exchange Commission about the memo, according to the Wall Street Journal which cited unidentified sources. Regulations limit what companies can say ahead of a planned IPO.

A Groupon spokesman declined to comment.

QUESTIONS SWIRL

Groupon is among a clutch of Internet companies heading toward an IPO this year or next, including social games maker Zynga and Facebook, the world's largest social network.

Apart from questions on disclosure, investors worry also about the underlying profitability of Groupon's business of sending out coupons online that offer big discounts on local products and services.

Its IPO filing in June revealed a company growing quickly, but losing a lot of money. Marketing spending on new subscribers has been a big source of those losses and some analysts worry that Groupon may have to keep spending heavily to attract and retain customers.

Mason has argued that subscriber-acquisition costs would dwindle over time because once a customer signs on, he or she can be maintained through simple email alerts.

The largest daily deal company wants to slash that cost to zero in less than three years, two people familiar with the company said last week. [ID:nN1E77U1OU]

The daily deals industry that Groupon helped create has also been experiencing growing pains recently.

Facebook ended its Deals business after only four months, while Yelp's chief executive said this week that some types of popular local businesses think daily deals are "uneconomic," raising questions about the sustainability of the model. (Additional reporting by Clare Baldwin in New York; editing by Andre Grenon and Tim Dobbyn)

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