Groupon poised for growth, possible IPO
By Sandra Guy Business Reportersguy@suntimes.com February 22, 2011 8:19AM
Employees at Groupon headquarters, 600 W. Chicago Ave., Wednesday, January 12, 2011. | John H. White~Sun-Times
Updated: March 24, 2011 4:09PM
Chicago-based Groupon, the fast-growing online deal site, has generated much buzz over when or whether it will go public. If it does, what might it be worth?
Experts have speculated that a Groupon IPO could raise up to $2 billion and value the company at $15 billion or more. Founding investor and director Eric Lefkofsky has said an IPO could happen this year or next year, though no decision had been made.
Excitement over public offerings has grown this year, especially since Nielsen Holdings’ IPO in late January. It drew $1.89 billion, according to Dealogic, making it the largest private-equity-backed IPO in the United States. Nielsen Holdings keeps tabs on what people watch and buy online, on TV and via mobile devices.
NeXtup figured a potential $40-per-share price for Groupon, based on an initial public offering of 165 million shares. Groupon officials have yet to say when or whether they will take the company public.
The research report cautioned that Groupon’s “take” of 40 percent to 50 percent of each deal with local merchants cannot be sustained because it faces so many competitors who could easily charge less.
Another potential speed bump for Groupon is that local businesses get repeat customers from its deals only 20 percent of the time, according to the NeXtup research.
The research firm’s cautions are juxtaposed against Groupon’s many assets, including a projected 20 percent growth rate, 60 million subscribers in 42 countries, and majority of users in the coveted demographic of urban and affluent 18- to 34-year-old women who frequent social-networking sites such as Facebook and Twitter, the research shows. Groupon’s closest competitor, LivingSocial, based in Washington, D.C., has only about 17 million subscribers.
Groupon was founded in 2008 and is being called the fastest-growing company in history. After turning down a reported $6 billion takeover offer from Google, Groupon raised $950 million in funding last month.
It is poised for more growth, in the U.S. and overseas.
On Monday, the Wall Street Journal reported that Groupon appeared to be starting operations in China, home to 450 million Internet users — the most in the world.
Groupon intends to enter new categories — the latest is travel — and to become a platform for small businesses much like Apple has become the platform for iTunes.
“New categories are coming. We will see a lot of new categories in the next year,” said Groupon President and Chief Operating Officer Rob Solomon. “Our big, hairy audacious goal is to wipe out the notion of perishability for small businesses worldwide. No great business should have an empty seat or table.”
The most popular categories are dining, health-and-beauty and outdoor activities. The deals include everything from indoor skydiving to Segway tours to teeth whitening and Brazilian hair blowouts.
Groupon executives don’t even call the company a couponing site. Instead, it’s an accidental phenomenon that serves as a city guide.
The company cracked the code of combining people’s virtual worlds with their social ones, though it wasn’t by design, Solomon said.
“On the Internet, accidents are great,” Solomon said. “Yahoo, Google, and I would argue Facebook, were all big accidents. We are starting to be thought of as a company that can be mentioned in the same breath as those guys.”
Chicago’s technology community sees Groupon as a prize asset as the city works to become known as a high-tech hub.
Solomon says the company and its CEO, Andrew Mason, are here to stay. Groupon’s employees stand to become millionaires if the public-share offering fulfills the hype, but none of them wants to talk about that.
“Andrew is going to be the long-term CEO of this company,” said Solomon, a 44-year-old Silicon Valley tech veteran who moved here for the Groupon job a year ago.
Solomon likens Mason, the 30-year-old baby-faced leader known for his goofy sense of humor, to Microsoft Chairman Bill Gates, Amazon founder Jeff Bezos, Facebook founder Mark Zuckerberg and Netflix founder Reed Hastings in showing he can grow with his company and stay committed for the long haul.
“He has natural and innate instincts around the company’s core functions. He knows how to push us in the right direction,” Solomon said.