Groupon is a "deal-of-the-day" website. It launched in November 2008 - the first market for Groupon was Chicago, soon followed by Boston, NYC, and Toronto. As of October 2010
[update], Groupon serves in more than 150 markets in North America and over 100 markets in Europe, Asia and South America, with 35 million registered users.
Groupon recently turned down a $6 billion acquisition offer from Google. According to an undisclosed source, Groupon began talking to bankers about an initial private offering (IPO) that led to a valuation of $15 billion. Now, according to a report by Bloomberg, the valuation is at $25 billion.
Instead of going public, other companies seek another round of financing through venture capitalist. In other words, the underlying reason for going public is extra financing - a ploy to get more investments.
Think back to the dot.com bubble/crisis and the posting below on the two bubbles we are currently in - is Groupon in a bubble? Should we consider buying into their stock? Don't be discouraged by the questions - a few companies like amazon.com, and doubleclick.com (which was later acquired by Google in April 13, 2007 for US $3.1 billion in cash), survived the bubble. But note that Amazon only started making money 7 years into their business.
Bloomberg Businessweek puts Groupon’s revenues at an estimated $3 billion to $4 billion this year (2011). Compare that number with the $760 million in revenues for 2010 reported by the Wall Street Journal – getting a sense of its growth? Groupon is 2.5 years old. The faster the growth rate, the higher the valuation. (Hence the $25 billion valuation.) At $25 billion, a Groupon IPO would shove Google to become the largest venture-backed IPO ever.
NeXtup figured a potential $40-per-share price for Groupon, based on an initial public offering of 165 million shares.
But note that the key to the valuation is not so much revenues as it is profits, and right now Groupon seems to be wildly profitable. Groupon’s revenues are split with the local merchants who offer discounts through the service much like Google splits AdSense revenues with participating Websites. “So the local merchants take at least 50 percent of the revenue off the top. What’s left is still an extremely high-margin business that has managed to bridge the divide between online and local commerce in a major way for the first time.”
Conclusion: Groupon’s position is not like the dot.com bubble/crisis because they have a working business plan and legitimate revenue streams. The risk comes with the environment – how big can Groupon really become and how long can it sustain its 50% split with its merchants?
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