Groupon To Raise Up To $540M In IPO

Groupon, Inc. has come out with its revised filing, in which it is looking to raise up to $540 million as against a proposed $750 million, disclosed earlier. Groupon, a deal-of-the-day website started three years ago, will be valued anywhere between $10.1 billion and $11.4 billion as per the price band of $16-$18 per share. The valuation is less than 50 per cent of the $25 billion number doing the rounds when Groupon, which rejected a $6 billion buyout from search giant Google, had first filed for its initial public offering.

"The valuation is great for a two-year-old start-up. Forget what the market says, there is a lot of negative publicity, especially for Groupon, in this space. It is a testament to success. To be actually able to be in a position to go for an IPO is significant. It is great for the group buying market, overall," said Arjun Basu, CFO at mydala.com. Basu feels that the model will survive, given the macro situation as the business is driven by recession in the USA.

Annualizing the third quarter numbers, Groupon will have gross billings of around $4.5 billion with net revenue of $1.72 billion. This would mean that Group0n valuation is 6-6.7x multiple of of net revenue and 2.25-2.5x of gross revenue. India's largest group-buying player Snapdeal.com recently raised Rs 200 crore at a reported valuation of Rs 1,000 crore led by Bessemer Venture Partners. According to an Economic Times article, Snapdeal is expecting revenues of Rs 100 crore this year, which imply a 10x multiple as per back-of-the-envelope valuations done by VCCircle.

While Groupon has 143 million subscribers, Snapdeal has recorded 6 million members by July-end and it is said to be adding 1.5 million new members every month.

Groupon entered India by acquiring a local start-up called SoSasta.com, owned by brothers Ananya Bubna and Udayan Bubna, in February 2011. But its journey in the subcontinent has not been smooth. The company is still mired in a legal case for ownership of the domain name Groupon.in and a data breach struck in June while the logo's tagline 'by GroupOn' was dropped, sparking rumours. The Bubna brothers had quit last month and several top management executives left in droves. Even as this occurred, the company continued to grow its employee base and hired 200 employees in less than six months.

From SoSasta, the company has rebranded itself as Crazeal in India and has announced a whole new team.

"India is a different ball game. Credit cards are minority. Merchant needs are different. User needs in India are different as well. Groupon has the money for it but has struggled here as it is a tough market to execute and build out," added Basu.

It is estimated that there are 130 daily deal and group buying sites in India, all of whom have sprouted in the past two years. The popular ones are Snapdeal.com, which recently raised $40 million; Info Edge India-backed mydala.com; koovs.com that was acquired by New Delhi-based e-commerce firm BenefitsPLUS Media Pvt Ltd; Dealsandyou.com promoted by the Smile Group; NASDAQ-listed Rediff.com, India Ltd's Deal Ho Jaye and Timesdeal.com by Times Internet.

Other local spin-offs and deal aggregators include Taggle.com, Buzzintown.com, Dailydeal.in, Dealdrums.com, Motadeals.com, Dealivore.com, Khojguru.com, Thekha.com, Bindaasbargain, Cityoffers.com, Scoopstr.com, 24Hoursloot.com, Masthideals.com, Snatchdeals.com, Lootmore.com, 30Sunday.com and Bindasbargain.com.

Groupon Numbers

Groupon increased its revenue from $1.2 million in the second quarter of 2009 to $430.2 million in the third quarter of 2011. Gross billings increased from $3.3 million to $1.16 billion during the same period. But its net loss has significantly narrowed to $10.6 million for the third quarter of 2011, as compared to $102.7 million during the second quarter of 2011.

While Groupon's North American business turned a pro forma operating profit of $19 million, its international segment lost $21 million in the third quarter.

Groupon's subscribers increased 23 per cent to 143 million, compared to 116 million, which was recorded three months earlier. The number of one-time customers (defined as subscribers) went up to 30 million from 23 million in the same period. The number of repeat customers jumped 33 per cent to 16 million, with average revenue per Groupon also inching up from $12 to $13 from the second to the third quarter.

The lead advisors for Groupon's offering are Morgan Stanley, Goldman Sachs and Credit Suisse. It is reported that Goldman Sachs chairman and CEO Lloyd Blankfein personally flew down from New York to Boston to pitch for the Groupon IPO mandate.

Major shareholders in the company include founder Andrew D. Mason, seed investor Eric P. Lefkofsky and venture investors New Enterprise Associates and Accel Partners.