Groupon Moves Towards Likely IPO

By Greg Sushinsky | January 19, 2011 AAA

Online daily deal site Groupon is reportedly headed for a spring debut as a public company and has been meeting with investment bankers. The two-year old company, which turned down a $6 billion offer recently from Google (Nasdaq:GOOG), might be valued at $15 billion at its IPO.

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Deals Not Just Online
Groupon, along with social network site Facebook, have been the most talked about potential IPOs since Google went public in 2004. Ironically, Google's recent offer for Groupon may have accelerated Groupon's move toward going public. After turning down Google, Groupon recently raised $950 million from investors which included such big names as T.Rowe Price (Nasdaq:TROW), investment bank Morgan Stanley (NYSE:MS) and others.

Groupon's Growth
Groupon, which features daily online coupons for substantial discounts to local products and services, was started in 2008 and currently has an estimated 35 million to 50 million users in several hundred markets.The company, which does not publicly disclose its financial information, reportedly had estimated sales of $500 million to $1 billion in 2010.

Groupon's Turndown
CEO Andrew Mason supposedly turned Google down over concerns for the direction the company might have taken after a buyout. Groupon's turndown of Google has plenty of precedent. Facebook's Mark Zuckerberg turned down Yahoo's! (Nasdaq:YHOO) $1 billion offer in 2006, and has seen both Facebook's business and potential valuation soar. Zuckerberg, unlike Groupon's Mason, still appears reluctant to take Facebook public.

Hot Web Properties
Groupon is likely taking advantage of the rapidly heating buzz it's generated, as well as its business momentum. Even if Facebook doesn't go public in the near term, other website properties such as Twitter and LinkedIn are heating up and may be headed for IPOs. There is no sure path to success, either staying independent publicly, even privately, or being bought out. MySpace and Bebo, former Facebook rivals, sold to News Corp. (NYSE:NWS) and AOL (NYSE:AOL) respectively, and both MySpace and Bebo have dwindled in value since.Timing and some luck might have something to do with the eventual outcomes of not only IPOs, but the businesses generated by the startups themselves.

Imitators, Knock-Offs and Clones
Groupon's Mason grumbled that his company "was the most knocked-off business in the history of businesses." Maybe. Its business model is bone simple. Customers receive an email with a local daily-deal, which requires a certain number of subscribers to purchase the deal to get the discounts. Call it social digital discounting. The business is easy to imitate, and there are now dozens, if not hundreds, of Groupon-like sites such as LivingSocial, which counted Steve Case as an investor.

The Business Model Problem
Backers of the business model claim there's room for plenty of Groupons. One digital discount coupon site can only cover so many deals, the thinking goes. But that may be a problem, too. Unlike Facebook, which has risen to worldwide dominance in the social networking space, with too many Groupon -like sites, there can be a growing fragmentation and diffusion of market share.

The Bottom Line
This is a different and potentially more limiting metric to the future growth of Groupon than Facebook's potential problem. Facebook will eventually have to find new ways to monetize what needs to be outsized growth to justify its already lofty private valuation. Groupon will have to grow in a clone-infested environment. It's not an insurmountable problem for Groupon; still, you get the sense that the Street and Groupon both want its IPO to go off before anyone can think too much about where this is all going. (For related reading, take a look at The Biggest IPO Flops.)

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