Asa Mathat/All Thing Digital, via ReutersGroupon’s founder, Andrew Mason. Enthusiasm for Groupon’s I.P.O. has fallen, in part because of questions about accounting.
9:05 p.m. | Updated
Groupon, the daily deal site, is seeking to sell shares in an offering that would value the company at close to $12 billion, several people with knowledge of the situation said on Wednesday.
Such a valuation, which is being weighed as the company prepares for an investor road show next week to pitch its initial public offering, would be a steep comedown from earlier expectations that an I.P.O. of the Internet darling could value the company as much as $25 billion to $30 billion.
But shaky stock markets in recent months have prompted the company’s bankers to revise their calculations. Enthusiasm for Groupon has also been tempered amid sharp questions over its business model and accounting.
The stock offering, likely to take place next month, is expected to be less than 10 percent of the valuation and could be as small as $500 million, the people with knowledge of the situation said. The valuation is estimated to be more than $10 billion and will be significantly higher if markets improve.
The market challenges facing the Groupon I.P.O. are shared by other companies seeking to go public.
Prolonged market volatility and uncertainty over the global economy have put the market for offerings in a deep freeze since the middle of August. This week, Liberty Mutual and Glacier Water Services withdrew their I.P.O.’s. And Zeltiq Aesthetics, which was the second company to complete an initial offering since August, priced its stock sale below its expected range.
The chill has affected even hotly anticipated Internet offerings like Groupon’s. Less than three years old, the Chicago-based company has rocketed to stardom. The site, which features deeply discounted offers on local goods and services, has attracted more than 115 million subscribers. Its work force, meanwhile, has swelled to more than 9,600, spread across some 220 markets. Sales have also kept apace. In the first six months of this year, it recorded revenue of $688.1 million.
Yet, despite its swift rise, the company has stumbled at several turns on the way to the public markets.
Known for its unabashedly eccentric culture, Groupon has at times defied the norms expected of a company preparing to go public. It has been forced to amend its prospectus several times, in large part to revise accounting.
Among those revisions was eliminating a metric that subtracted Groupon’s online marketing expenses from its operating performance, which critics said gave a misleading impression of profitability. The company also restated its revenue by stripping out payouts to vendors, essentially halving what had once been eye-popping numbers.
Accounting questions were not Groupon’s only problem. The company was criticized for apparently violating a regulatory quiet period before its I.P.O. — a memorandum to employees from Andrew Mason, the chief executive, that extolled the company and was leaked to the media. Groupon settled the matter by incorporating it in a revised prospectus. And earlier this month, the company submitted yet another filing to release the full memo and to disclose additional details on its accounting methods.
The start-up, still the leader of the daily deal market, has also drawn the ire of critics and some small business owners, who strongly question whether its business model is sustainable in the long run. Several vendors, frustrated by low margins and the lack of repeat customers, have written scathing missives online. Meanwhile, analysts say its once eye-popping growth seems to be slowing, despite heavy marketing.
The company, which has pledged to pull back on advertising, spent $432 million on marketing in the first six months of this year.
The mounting criticism also comes at a somewhat vulnerable time for Groupon’s management team. Its chief operating officer, Margo Georgiadis, stepped down last month, after about five months at her post. A replacement has not been named.
Despite its hurdles, Groupon’s offering remains one of the most anticipated technology I.P.O.’s this year. The company, which will trade under the ticker GRPN, has hired Morgan Stanley, Goldman Sachs and Credit Suisse to serve as its lead underwriters.
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