Tim Boyle/Bloomberg NewsGroupon employees at its headquarters in Chicago. The company now employs more than 7,000 people and has 83 million subscribers across 43 countries.
9:31 p.m. | Updated
As Groupon would say, the deal is on.
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, surpassing the value of Google at its initial public offering.
Groupon is part of an elite club of social Internet companies that is fanning investor ardor for the next generation of technology giants. The gaming company Zynga is preparing to file for an offering that could value it at more than $10 billion, according to two people with knowledge of the matter who were not authorized to speak publicly.
Facebook, which recently raised $1.5 billion in a financing led by Goldman Sachs, is expected to file by next year. It’s the giant of the group, valued at as much as $80 billion.
On Thursday, the online music service Pandora moved one step closer to the public markets by setting its I.P.O. price range at $7 to $9, according to its latest filing. Pandora plans to raise as much as $141.6 million in its offering, at a $1.4 billion valuation.
“I think its all about pent-up demand,” Bing Gordon, a venture capitalist and a director of Zynga, said. “Markets are often good predictors, and I do think social is just getting started.”
The first wave of new technology stocks has already sparked a frenzy, prompting worry that this boom could be a bubble. Shares of LinkedIn, a company that has struggled to maintain profitability, more than doubled on its first day of trading in May. At Thursday’s closing price of $78.63, it was still trading around 75 percent above its offering price.
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 now 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. (In its filing, Groupon put its I.P.O. value at $750 million, a nominal amount used to calculate the registration fee.)
In a letter to prospective shareholders, Groupon’s chief executive, Andrew D. Mason, highlighted the company’s growth opportunities but cautioned investors to temper their profit expectations.
“In the past, we’ve made investments in growth that turned a healthy forecasted quarterly profit into a sizable loss,” he said. “When we see opportunities to invest in long-term growth, expect that we will pursue them regardless of certain short-term consequences.”
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 to just $4.5 million the year before.
“We cannot be certain that we will be able to attain or increase profitability on a quarterly or annual basis,” the company said in its filing.
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 harkens back to the days of the technology boom in the late 1990s, when unusual metrics like “eyeballs” were touted 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 massive 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.
While Class A shares will be sold in the I.P.O., Mr. Mason, Mr. Lefkofsky and Bradley Keywell, a co-founder and director will hold onto all of Groupon’s Class B shares. The dual-class stock structure, already in place at Facebook and Google, allows founders to effectively maintain control of their companies while still trading in the public markets.
The rush to go public, at increasingly higher valuations, has fanned concerns that the market is, once again, starting to feel bubbly.
Groupon, which will trade under the ticker “GRPN,” has hired Morgan Stanley, Goldman Sachs and Credit Suisse as underwriters for the offering.
Claire Cain Miller and Ben Protess contributed reporting.
Article source: http://feeds.nytimes.com/click.phdo?i=93ed15141cda9e99025850c9679d6403
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