Online coupon company Groupon Inc filed for an initial public offering on Thursday, the latest in a series of social networking companies to tap the US capital markets.
Groupon filed to raise up to USD 750 million in its IPO. However that figure is preliminary and could change.
Other Internet companies including LinkedIn Corp and China's Renren Inc have already had strong IPO premieres, and anticipation is building toward a fever pitch for potential offerings of Facebook and Twitter. Pandora, a Web radio company, raised its IPO size to up to USD 141.6 million on Thursday -- 40% more than estimates.
Still, some doubt whether the buzz and sky-high valuations surrounding the new generation of Web companies are justified, warning that the current hype is all too reminiscent of the atmosphere prior to the dotcom bust in 2001.
"I think investors will go for this one," said Ryan Jacob, chairman and chief investment officer of Jacob Funds, which includes the Jacob Internet Fund. "Whether or not it's worth the valuation it comes at is still an open question."
Groupon itself, in the filing, cautioned that it has incurred losses ever since it was started two-and-half years ago, that its technology may not be up to the task of handling demand for its services, that its expenses are bound to rise, and that the daily deals market may not even continue to grow.
"As with any business in a 30-month-old industry, the path to success will have twists and turns, moments of brilliance and other moments of sheer stupidity," Groupon Chief Executive Andrew Mason, 30, said in a letter to potential stockholders that was attached to the filing.
The filing did not specify the number of shares to be sold in the IPO, the price range, or the exchange, though it did say the shares would trade under the symbol "GRPN."
Founded in November 2008 by Mason, a young and brash entrepreneur who majored in music at Northwestern University, Groupon offers members discounts on everything from meals at restaurants to sky-diving excursions. The "group" part of the name refers to the fact that many of the deals are activated only when a certain number of people sign up for them.
Discounts often run from 50 to 70%; for example, on Wednesday it was offering USD 20 worth of T-shirts at Old Navy, a Gap Inc chain, for USD 10.
Groupon, which currently has 83.1 million subscribers and deals with nearly 57,000 local merchants in 43 countries, is backed by some of the top venture capital firms in Silicon Valley, including Andreessen Horowitz, Battery Ventures, Greylock Partners and Kleiner Perkins Caufield & Byers. T. Rowe Price Group and Fidelity Investments also own a stake, among others.
At one point, Groupon caught the eye of Google, which unsuccessfully approached the company with a USD 6 billion takeover offer in December, a source told Reuters at the time. Today, Google, Facebook, LivingSocial and a clutch of other Web companies are offering their own coupon programs.
"Groupon's had a lot of success in its early stages, but the model of group buying has limited barriers to entry and it's being replicated," said BCG Partners analyst Colin Gillis,
Whether Groupon can turn its popularity into profit is another matter. The company takes a commission from the merchants that provide the services, and in the first three months of the year its revenue totaled USD 644.7 million. But it incurred a net loss in the period of USD 146.48 million, as it spent heavily to expand, both by acquiring customers and by signing up merchants.
"The growth is astronomical and clearly a lot of the money they're making is being plowed right back in the company," said Jacobs. "The biggest concern is going to be is this kind of growth sustainable with a lot of new entrants in the market and coming into the market, with one obviously being Google."
While Groupon is enjoying the spotlight shining on other hot social media companies such as Zynga, it requires resources those companies don't - a huge sales staff to enlist merchants and handle customer service.
Indeed, Groupon disclosed in its filing its staffing ballooned to more than 7,000 employees at the end of March from 37 in June 2009.
In April, a source told Reuters that Groupon could raise as much as USD 1 billion in the IPO, which could value the fast-growing daily deals site at USD 15 billion to USD 20 billion.
Underwriters are being led by Morgan Stanley and Goldman Sachs & Co.
