By: Jared Sorin
Groupon, which sells discount coupons for local businesses and then takes a cut of the proceeds for brokering deals, is going public. To be sure, the market is huge and booming – rapidly growing into a multibillion-dollar industry. But, is Groupon the likely winner in an industry characterized by intense competition from the likes of Google and Amazon?
Groupon’s much heralded IPO is about to price. Reports suggest that during the course of the “roadshow” that has been taking place over the last week or so Groupon CEO Andrew Mason and his team have created stronger-than-anticipated demand for what is expected to be the biggest US IPO in some time. Buyside sources say that the company, whose IPO is many multiple times subscribed, is expected to price its IPO at $1 to $2 above the current range of $16 to $18 per share. Groupon’s IPO is one of the most closely watched in years, partly because the public float will be a miniscule (unusually small) 4.7 percent of the outstanding stock and partly because this is the first daily-deals website to go public. If Groupon prices at $20 per share, it would be valued at nearly $13 billion.
For all the hype, however, Groupon also is subject to much criticism. Some say its business model is too easily replicable, resulting in a company with too few competitive barriers to entry and little in the way of proprietary protection. Others point to Groupon’s slowing growth, the fact that it has yet to be profitable or show a pathway to profitability, and concerns about its accounting and financial reporting. The biggest concern, however, may be that Groupon, which is expected to have a war chest of about $725 million post IPO faces competition from its much stronger and higher powered rivals, Google and Amazon.
If the company and the offering do well, we may see a new round of IPOs from other daily deals operators. Success also could encourage other Internet-based businesses, including Facebook and Zynga, to tap public markets. Failure, however, could foreclose financing opportunities (public and private) for companies struggling to emerge. Let’s hope for the former, but be prepared for the latter.
