Group buying giant Groupon has ended months of speculation by finally listing for an IPO, with the company hoping to raise $US750 million at a reported valuation of over $US20 billion just two and a half years after it was founded.
The filing comes alongside an update from music streaming service Pandora about its filing, with the company hoping to float its shares at between $US7 and $US9 each, delivering a valuation of more than $US1 billion.
The announcements confirm the new wave of tech valuations has been given a boost by LinkedIn’s successful float late last month.
Groupon’s filing is accompanied by a letter from co-founder Andrew Mason to potential shareholders, promising the company is “better positioned than any company in history to reshape local commerce”.
However, Groupon remains unprofitable and is losing hundreds of millions due to its rapid global expansion. And Mason says these expenses “will increase substantially in the foreseeable future”.
According to the S-1 filing, Groupon has more than 83 million subscribers – although only 15 million have bought a coupon – and there have been 70 million coupons sold.
As of March 31, 2011, it had more than 56,000 merchants, compared with just 2,900 one year earlier.
There is no share price listed in the filing, but the Wall Street Journal has reported sources indicate the company is shooting for a valuation of between $US20-25 billion.
The report also claims the $US750 million figure is just a placeholder, and that instead, Groupon may aim to raise as much as $US1 billion in the float.
Groupon was valued at nearly $US5 billion last year after a $US950 million round of funding led by Goldman Sachs.
The growth of the company is astounding. It turned over barely $30 million in 2009, but that rocketed to a massive $US713 million in 2010.
And growth exploded again in the first quarter of this year to revenue of $644 million. The company has more than 8,000 employees and is now operating in over 40 countries.
But despite these impressive growth figures, Groupon is hemorrhaging money. Its pursuit of rapid expansion across the world saw it lose $413 million in 2010, and this year alone it has already lost $113 million on revenues of $US644 million.
There are several reasons for these losses, including the acquisitions and international expansion it says is critical for growing revenue.
However, the company warns this strategy is “subject to risks”, such as coming up against strong competitors in international markets, cultural ambivalence, longer payment cycles and problems adapting to different business environments.
But Mason said in the filing the company is prepared to spend a lot of money acquiring subscribers “because we can measure the return and believe in the long-term value of the marketplace we’re creating”.
In fact, he says the company has previously been on track to record a profit but then decided to make investments at the last minute.
“In the past, we’ve made investments in growth that turned a healthy forecasted quarterly profit into a sizable loss… When we see opportunities to invest in long-term growth, expect that we will pursue them regardless of certain short-term consequences.”
As a result, he says the company prefers to use the metric “adjusted consolidated segment operating income” to measure profitability.
“This metric is our consolidated segment operating income before our new subscriber acquisition costs and certain non-cash charges; we think of it as our operating profitability before marketing costs incurred for long-term growth.”
In short, Groupon will continue making losses for awhile.
Morgan Stanley, Goldman Sachs and Credit Suisse have been named as underwriters.
Typical of tech companies, Groupon will float offering both Class A and Class B stock, which allow more voting power to be held by the directors.
Co-founder Eric Lefkofsky owns 21.6% of class A stock, while the New Enterprise Associates – which originally invested in Lefkofsky’s original venture which became Group on – owns 21.6%. CityDeal Management, acquired by Groupon in 2010, owns just over 10%.
Mason himself owns 7.7%, while venture capital firm Accel Partners owns 5.6%.
With regard to Class B shares, Lefkofsky and Mason both own 41.7%, while Bradley Keywall holds 16.7%
Groupon clearly recognises growing threats, and specifically points out Google and Facebook that “launched initiatives which are directly competitive to our business”. It vows to “increasingly compete” against them.
This filing represents a key point in the current wave of tech valuations. After LinkedIn’s float proved an overwhelming success, many companies are now taking to the stock market to prove their multi-billion dollar valuations are actually viable.
Social gaming giant Zynga is also eyeing a $US10 billion float, while Facebook recently confirmed that an IPO is definitely on the company’s agenda.
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
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