Groupon reduces its IPO ahead of investor roadshow

On Friday, daily deals site, Groupon, said it hopes to raise US$621-million from its initial public offering, significantly less than its initial amount of more than one billion.

In a filing with the US Securities and Exchange Commission (SEC), the Chicago-based Groupon said it plans to offer between 30-million and 34.5-million shares priced between US$16 and US$18.

This new figure values the company, which turned down a US$6-billion takeover offer from Google last year, at around US$11.4-billion, significantly lower than previous estimates of between US$25-billion and US$30-billion.

The IPO is expected on 4 November following Groupon’s roadshow for investors beginning Monday.

Markets have, however, plunged since June, when Groupon initially announced plans to go public, and questions have been raised about the company’s business model and accounting methods.

According to the latest SEC filing, Groupon’s revenue has grown from US$1.2-million in the second quarter of 2009 to US$430.2-million in the third quarter of this year.

Groupon said it is still not profitable but it cut its net loss to US$10.6-million in the third quarter.

According to a Wall Street Journal report:

The latest figures show that Groupon is still growing at a considerable pace, largely outside the U.S. But that growth is costing it a lot, and now it needs more cash to keep building. Groupon cut its third-quarter loss to US$10.6 million in the third quarter from US$101.2-million in the second quarter and US$102.7-million in the first quarter. The revenue growth rate fell to 9.6% in the third quarter from 33% in the second quarter and 72% in the first quarter.

Groupon is present in 175 North American markets and 45 countries and has 142.9-million subscribers, it said. It sold 33 million “Groupons,” or discount coupons, in the third quarter of the year.

In a letter accompanying the filing, Groupon chief executive Andrew Mason said the company would continue to “aggressively invest in growth.”

“When we see opportunities to invest in long-term growth expect that we will pursue them regardless of the short-term impact on our profitability,” Mason said, “We are unusual and we like it that way. Life is too short to be a boring company.”

Mason also cautioned that “success for our investors is not guaranteed”.

Some analysts have expressed concerns over Groupon’s business model and competition from rivals such as Living Social, Google and Amazon, which are also offering online local deals.

According to Forrester Research analyst Sucharita Mulpuru: “On their cash position, it’s clear that they’re looking to change their model pretty drastically soon—that is, cut down on expenses and focus on profitability. On the flip side, that means slower growth. But they have no choice. More cash isn’t buying them more revenue anyway.”

“My suspicion is that they reduced the valuation because their bankers took a look off the radar of the market receptivity to the initial offer and it was so cold that they took the drastic step of reassessing,” she adds.

“This valuation is a bit more in line with other recent tech valuations but the reality is that the business model is still challenged and it’s not something I would encourage anyone to invest in at any valuation.”

Trip Chowdhry of Global Equities Research expressed doubt that Groupon could enjoy sustained profitability.

“The competition is very intense, it’s very imitable,” Chowdhry said. “If you’re (focused on) fundamentals you should stay away, but if you’re a momentum player, go for it.”

Groupon’s stock offering will be closely watched by investors eagerly awaiting IPOs by social games maker Zynga and social networking giant Facebook.