Groupon set to list tomorrow after strong demand for IPO

Group-buying giant Groupon could price its initial public offering above the current range of $16-$18 a share, according to investors, with demand for the IPO stronger than expected.

The IPO is scheduled to price tomorrow, while the 30 million shares are due to begin trading on Friday. The company is targeting a price of $1-$2 above the current range, the investors said.

If the IPO prices at $19 per share, that would value Groupon at $12.02 billion. If it prices at $20 per share, that would take the value of the company to $12.7 billion.

Groupon’s IPO has emerged as one of the most closely-watched offerings in recent years, partly because the company’s business operations have been questioned by investors.

In July, reports emerged the regulatory review process could take longer than usual for Groupon due to “nonstandard financial measures” used by the company.

Telsyte senior research manager Sam Yip believes Groupon’s IPO was delayed because investors were struggling to work out the success, profitability and sustainability of the company.

Based in Chicago, Groupon remains unprofitable. At the end of September, the company had $243.9 million in cash but it owed merchants $465.6 million.

The 8.4% increase in cash from the prior period was outstripped by the rise in marketing costs, which jumped 37% to $234.4 million.

The company also used 85% of the $1.11 billion it has raised to buy equity from early investors looking for a return, instead of funding growth.

In addition, Groupon faces escalating competition from competitors such as Living Social, which are giving more favourable terms to merchants.

Last month, Groupon scaled back the size of its offering to sell less than 5% of the company – one of the smallest floats in the past decade.

The news comes on the back of reports that fellow US-based tech company Angie’s List, which lets consumers review and rate service professional, has set the terms for its own IPO.

Angie’s List was founded in 1995 by Angie Hicks. To date, it has raised nearly $100 million from the likes of Battery Ventures, City Investment Group and Cardinal Ventures.

As of September 30, 2011, the company offered its services to paying members in 175 local markets in the United States. Angie’s List now has more than one million paid memberships.

In a new filing, the company revealed its plan to raise as much as $131.4 million in its IPO, which it has priced in the range of $11-$13 per share. This would value the company at nearly $700 million.

This article first appeared on StartupSmart.