Only two days left until Groupon begins trading on the NASDAQ exchange under the symbol GRPN. Their highly anticipated (and often panned) IPO, scheduled for November 4, is important to investment banks that have another 14 ventures in the wings waiting to launch their IPOs. If Groupon fares well, companies like Zynga and Angie’s List will head out with some confidence. On the other hand, given all the negatives around Groupon in the past few months, there are no guarantees that this party will last beyond the initial bump.
- For one thing, Groupon is not profitable. According to its SEC filings in June, the company managed to lose $103 million on revenues of $878 million. Of course, that hasn’t stopped other companies from going public, but investors would like to see a clear path to profitability.
- In August, 2011, Groupon lost 50% of its traffic from its peak in June while key rival Living Social gained 27% (guess where that came from).
- Of their 143 million subscribers, only about 17 million bought a daily deal in the third quarter of this year, according to Venture Beat’s Rocky Agrawal.
- In September employees filed a class action suit against Groupon claiming that the company violated federal and state labor law.
- Then, if Google didn’t already do enough to signal that it wanted to become THE deal leader by offering to purchase Groupon for $5 billion last winter, it just purchased the German company Daily Deal, as well as restaurant rating giant Zagat, and ITA Software, a software developer for the travel and airline industries. Moreover, Google launched Google Offers and now many of Groupon’s competitors like kgbdeals, zozi, and Gilt City are providing their deals through the Offers channel. It appears that Groupon got greedy thinking it could do better than the $5 billion Google offer, but in my experience, the first offer is often the best. We’ll see. In any case, Google has the scale and the resources to take a huge bite out of Groupon over time.
- Groupon’s over-the-top valuation of between $15 and $20 million has now dropped 43%, given all of the above. On its road show, the company is proposing going out at $16-$18 a share, which is about a $11.4 billion valuation, still a big valuation for a company with no profits.
The big question remains: what is Groupon’s strategy for growth? What do they have beyond coupons, especially with Google on their heels? The IPO will only sell 4.7% (30 million shares) of the total shares outstanding, which is the smallest percentage of any IPO in recent memory. Most IPOs seeking more than $100 million sell at least 15% of their outstanding shares. However, Groupon management was taking no chances that their offering wouldn’t be oversubscribed (or at least fully subscribed).