BOSTON Daily deals site Groupon told potential investors on Wednesday it can fend off competitors, but many portfolio managers told Reuters they were skeptical.
Groupon Chief Executive Andrew Mason told investors the company's technology was unique and difficult to replicate. He described the company's advantages, such as innovation, as "competitive moats" that will protect Groupon's market position.
"Over the next five years, how people buy from local merchants will be forever disrupted by technology," Mason said.
He added that Groupon's technology is playing a vital role for mom-and-pop merchants and larger businesses.
As an example, he said a business can identify a slow day and "turn a price knob" to drive traffic through their doors.
But Mason also acknowledged the business of offering new discounts every day is a difficult one.
"Barriers to entry are admittedly low," he told an audience of about 140 people inside a ballroom at the InterContinental hotel in Boston's financial district. The company gave a nearly one hour presentation and allowed 10 minutes for questions.
Groupon is competing with well-funded technology heavyweights such as Google Inc (GOOG.O) and Amazon.com Inc (AMZN.O). They have billions of dollars to put in play, while Groupon expects to have about $723 million in cash and cash equivalents after the IPO.
"My biggest concerns are their competitors," said Charlie Toole, a portfolio manager for Braver Wealth Management LLC, which has about $600 million under management.
"What's to prevent Facebook, Amazon and Google from going to merchants and offering better terms. How does Groupon keep margins and pricing intact?" Toole told Reuters in a telephone interview after attending the roadshow.
Groupon is on the third day of its U.S.-only roadshow. Leading up to its expected IPO pricing on November 3. Executives are stopping in cities, including Boston, Chicago, Denver, New York and San Francisco, to make the case to investors that the daily deals site is worth around $11 billion.
Several people at the Boston luncheon said they worried the stock would not be viewed as a long-term investment by institutional investors.
"I think there's going to be a lot of flippers," said a one portfolio manager, who oversees $300 million in assets.
He declined to be named for this story because he did not want to hurt his chances of getting shares.
Toole expected the IPO -- set to price at $16 to $18 a share -- to be oversubscribed, although not everyone was sure about that.
Several potential investors said underwriters might have to shave off a dollar or two off the current range to boost demand.
The Boston luncheon was a low-key affair. There were no gimmicks or jokes and no applause.
Portfolio managers, stockbrokers and hedge fund managers were given a lunch of wild mushrooms over spinach leaves with asiago cheese shavings, chicken with green and white asparagus and carrots, mashed potatoes and tiramisu and chocolate cheesecake. Some investors controlled a few hundred million dollars and some controlled billions.
Goldman Sachs star tech banker George Lee, who put together Goldman's investment in Facebook, introduced Mason, product chief Jeff Holden and CFO Jason Child.
Groupon sells coupons for local businesses and takes a cut of the proceeds for brokering the deals. While the market for such companies is booming -- it has grown into a multibillion-dollar industry in the past several years -- Groupon has struggled. The company, which has never turned a net profit, has changed its accounting twice under pressure from regulators and lost two chief operating officers this year.
Some money managers were skeptical enough to skip the roadshow altogether.
Carrie Endries, a principal at Boston-based money manager Lowell Blake & Associates, which has about $600 million in assets under management, said some of her clients initially were excited about the Groupon IPO, but that enthusiasm has waned.
"It felt like the Internet bubble all over again," Endries told Reuters in an email message. "Luckily, the last 10 weeks have tempered that kind of irrational exuberance."
Underwriters on the Groupon IPO are being lead by Morgan Stanley (MS.N), Goldman Sachs & Co (GS.N) and Credit Suisse CSGN.VX. The shares are expected to begin trading on the Nasdaq on November 4 under the ticker symbol "GRPN."
(Reporting by Tim McLaughlin in Boston; additional reporting by Liana B. Baker in New York; writing by Clare Baldwin in New York)