Friday, June 3, 2011

Groupon (GRPN) Files IPO Papers with Potential Valuation at $30B

Whatever you think about Groupon (GRPN) itself, or the potential bubble in web2.0 companies - the story of this company is staggering.  This entity was not even in existence until late 2008... within 2 years it rejected an offer by Google for a buyout at $5-$6 Billion. [Nov 30, 2010:  From Startup in 2008 to Potential $5-$6B Buyout from Google in 2010]    And now roughly half a year after that rejection, it is filing IPO papers that will potentially give it a valuation of some $30 Billion.  And that is before the retail crowd jumps in on day 1, pumping the stock to who knows what valuation.  Again - this company was not around 3 years ago. 

The expectation was for a late 2011 IPO but I think the company is smart to go earlier, as the fervor in the space is fever pitch and no one knows what the market will be like in 6 months or 12 months.  As the company is in its early life, hyper growth stage - investors currently are willing to pay almost any price, despite lack of profits.  As with most of these type of companies the idea is build it, and the profits will come. 

Zynga also is striking when the fire is hot.  Obviously the giant on the hill, Facebook, is the ultimate deal - seemingly they are still going to wait until 2012.

Via NYT Dealbook

  • The social buying site on Thursday filed to go public, a hotly anticipated debut that could raise $3 billion, according to two people close to the company who were not authorized to speak publicly. At that level, the company would be worth roughly $30 billion.
  • LinkedIn’s stunning debut has pushed Silicon Valley and Wall Street bankers to revise expectations higher on all types of technology offerings. According to one person close to Groupon, the company and its bankers have struggled to pinpoint the final valuation for the I.P.O. The person cautioned that it could move higher or lower based on market conditions.
  • “I would urge any investor to think about the fundamentals,” said Sucharita Mulpuru, a Forrester Research retail analyst. “Sure Groupon could be the next Amazon, but as an investor do you have the patience to wait them out?”
  • Groupon, based in Chicago, has enjoyed a meteoric rise in its short life.  Shortly after its founding, Groupon notched revenue of $94 million in 2008. Two years later, it swelled to $713 million. The company — which employs more than 7,000 people and has 83 million subscribers across 43 countries — reported $644.7 million of revenue in the first quarter of 2011 alone.
  • As its prospects have grown, so has investor interest. In 2010, the company was worth roughly $1.4 billion, based on a fund-raising round led by the Russian firm D.S.T. Global. Groupon spurned a $6 billion takeover bid from Google in December, opting instead to raise nearly $1 billion from Fidelity Investments, T. Rowe Price and other investors.
  • At a $30 billion market value, Groupon would top that of Google at its market debut. Google raised $1.67 billion in August 2004, putting its value at $27 billion. 
  • Like many start-ups, Groupon is still struggling to turn a profit. Last year, the company’s loss topped $450 million, compared with $6.9 million in 2009 and $2.2 million in 2008. The company’s biggest expense is marketing. Groupon spent $263.2 million on advertising and subscriber e-mails in 2010, compared with just $4.5 million the year before. 
  • By comparison, Google earned $106 million on revenue of $1.5 billion in the last full year before it went public in 2004.
Here is where the 'bubble' talk resurfaces - since Groupon is not profitable under conventional means... well, they make up their own standard.  Similar to what we saw in 1999.  Although to be fair, Groupon has far more revenue than 99% of the things that were coming out in 1998-1999.
  • With less-than-ideal financials under generally accepted accounting principles, Groupon is trumpeting a nonstandard metric that excludes marketing and acquisition costs. On that basis, it reported $60.6 million in operating income last year and $81.6 million in the first quarter this year.
  • To some, the use of such nonstandard measures harks back to the days of the technology boom in the late 1990s, when unusual metrics like “eyeballs” were used instead of numbers like net income. Those specialized figures were often used to present a rosier picture of a company’s financials, obscuring their profitability.
  • Groupon argues that its enormous marketing budget is both necessary now and will dwindle over time. Locked in a race for subscribers around the world, the company is willing to spend a tremendous amount of money in the short term to secure a dominant market share. It says it will cost less to maintain those subscribers over time.
  • As an example, Groupon said in its filing that it spent $18 million to add about 3.7 million subscribers in the second quarter last year. By March 31 of this year, those customers generated $145.3 million in revenue and $61.7 million in gross profit.
  • Groupon’s investors and early employees stand to reap a windfall in an I.P.O.  The company’s largest shareholder, its co-founder and board member Eric P. Lefkofsky, owns 64.1 million shares, or roughly 21.6 percent of the company’s Class A common stock — a stake that would be worth billions of dollars. The venture capital firm, Accel Partners, which invested in Groupon in November 2009, owns a 5.6 percent stake. Mr. Mason, who made $184,599 last year, controls 7.7 percent of company’s Class A shares.

[Feb 26, 2011: Groupon Revenue Hits $760M in 2010; Staggering Year over Year Growth]
[Dec 31, 2010: NYT Dealbook - New Round of Financing for Groupon Sets Stage for Late 2011 IPO]

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