initial public offerings (IPOs) trading on American exchanges

Wednesday, January 4, 2012

Groupon (GRPN) - profile

A controversial and unprofitable daily-deals and coupon website. Started trading on the NASDAQ on November 4, 2011 under the symbol GRPN.

  • Groupon raised $700 million after increasing the size of its initial public offering, becoming the largest IPO by an Internet company since Google Inc raised $1.7 billion in 2004.
  • The company is now worth about $80 billion.
  • The underwriters were Morgan Stanley, Goldman Sachs and Credit Suisse
  • Filed for a $750 million IPO on June 1, 2011, originally planed to debut mid to late September.
  • Andrew Mason, the chief executive and founder of Groupon, is worth $2 billion less than Eric Lefkofsky (Groupon's largest shareholder and chairman), the man who financed Groupon’s start. Lefkofsky  has a 22% stake in the company.  The other co-founders include Andrew Mason (8% stake), and Bradley Keywell (7% stake),
  • Groupon has 10,000 employees and has offered over 1,000 daily deals to 150 million subscribers across 46 countries, and has sold over 70 million Groupons.
  • Groupon deals can be irresistible to customers. The merchant typically agrees to discount a product or service by 50 to 90 percent. Groupon then sells the coupons via its e-mail distribution list. Usually a minimum number of people have to buy the offer before the deal “tips” and becomes redeemable. Groupon and the merchant then split the revenue from the deal 50–50. They both keep the money even if the customer never redeems the voucher. An estimated 20 percent of Groupons don’t get used, which amounts to free revenue for local merchants.
  • Headquarters in Chicago; company started in 2008; the fastest growing company ever
  • Sold 30 million shares (or about 5%) at $16 to $18 apiece, out of the 630.4 million shares that will be outstanding after the offering. At the midpoint of the price range, Groupon would be valued at $10.8 billion.
  • The low-float approach, dubbed "slim to win," involves selling a sliver of a company's outstanding shares in an effort to create an artificial scarcity once the shares begin trading. It was most recently employed by LinkedIn (ticker: LNKD) and Zillow (Z), whose shares rose sharply immediately after their IPOs, and which still trade comfortably above their IPO prices.
  • Price range of between $16 and $18 per share would value the daily deals company at $10.1 billion to $11.4 billion. Early buzz had swirled around a valuation as high as $30 billion
  • Plans to raise between $480 million and $540 million, a more modest goal than its original plan of $750 million
  • Founded in 2008 by Andrew Mason, Eric Lefkofsky and Brad Keywell
  • Sales in 2010 surged to $312.9 million from $14.5 million the previous year, a growth rate so fast that Google offered to buy the company for $6 billion last year. Groupon rejected the deal, choosing instead to raise $950 million in private capital and stay independent while pushing toward an IPO.
  • That strategy came under fire in June, when Groupon filed its prospectus, showing the company had lost $540.2 million in three years and that in the first quarter alone had spent $179.9 million to bring in subscribers.
Andrew Mason, 30-year old Groupon's CEO, once spread a rumor in his office that he owned 20 cats

  • Unprofitable: Groupon lost $62.3 million in the second quarter, an improvement from the first quarter when it lost $98.3 million.
  • Zero barriers to entry; hundreds of competitors, including Living Social, Google (Google Offers), Amazon, AT&T, and The New York Times
  • Unique choice of accounting (required a new S-1)
  • Business in North American is slowing: revenue per subscriber and revenue per merchant are declining in North America. 
  • A $10 billion market value is a lot for a company with no profits and an unproven business model.
  • As of June 30, Groupon had $225 million in cash on hand, according to an amended S-1 the daily-deals website filed with the Securities and Exchange Commission. The problem: The company still owed $392 million to merchants for Groupons that had already been sold and used up by its customers.
  • The company had $243.9 million in cash at the end of September and still owed merchants $465.6 million. The 8.4 percent increase in cash from the prior period was outstripped by the rise in marketing costs, which jumped 37 percent to $234.4 million.
  • Groupon is more of an advertising company than an Internet company. It has upward of 10,000 employees—about five times that of Facebook—because it needs: an army of salespeople to call on local businesses; customer-service reps; technology staff; plus writers to craft hundreds of catchy pitches a day for the deals e-mailed to most of its 142 million subscribers.
  • Groupon faces escalating competition from LivingSocial and Google Inc. (GOOG), which are giving more favorable terms to merchants. That’s led Groupon to accept lower margins to avoid losing business. The amount of billings the company booked as revenue shrank to 37 percent in the third quarter from 42 percent in the prior period and 44 percent in the first quarter. Groupon attributes the lower margins to getting into new products, like travel and event tickets. 
  • Groupon’s margins are already being pressured as businesses become savvier at the negotiating table. Instead of making a solid 50 percent on the deals, many of Groupon’s salespeople are being told to accept less favorable margins, in the 35-to-45-percent range. National merchants are now able to negotiate deals in which Groupon’s share is 5 to 25 percent. 
  • Few companies have grown as rapidly as Groupon. Founded in 2008, the company had 142 million subscribers globally at the end of the third quarter, up from 21 million a year earlier. 
  • Nine-month revenues of $1.1 billion were more than seven times the $140 million in the same period of 2010. 
  • Much of Groupon's growth this year has come abroad, where it is aggressively expanding.Groupon is growing fast, making it attractive to investors facing a slowdown in economic growth
  • In 2010, it featured 66,289 merchants, and in the first 3 months of 2011, it featured 56,781 merchants.
  • Its 2010 revenue was $713.4 million compared to $30.5 million in 2009. During the first quarter of 2011, it generated revenue of $644.7 million.

Revenue rose to $878 million in the second quarter compared with $644.7 million in the first quarter and rose more than 900 percent from $87.3 million in the second quarter of 2010, the company reported in the filing.

The numbers show Groupon's growth slowed from the first quarter. Revenue was up 36 percent in the second quarter, below growth of 63 percent in the first quarter.

The number of Groupon subscribers jumped to more than 115 million at the end of the second quarter. But revenue per subscriber fell 12 percent to $8.57 in North America, according to David Sinsky of Yipit, which tracks the daily deal industry.

Forty-six percent of revenue was generated from North America in the first quarter 2011, and 54% was generated from Europe. In May 2010, Groupon acquired CityDeal, which added 1.9 million subscribers as of the date of the acquisition in several major European markets, including London, Berlin and Paris, and ended the year with operations in 38 countries.

Groupon has offered deals involving over 140 different types of businesses, services and activities that fall into six broad categories; the following shows the percentage of deals offered worldwide across those categories during the first quarter of 2011: Health & Beauty: 31%; Food & Drink: 23%; Activities: 15%; Events: 11%; Services: 11%; Retail: 9%.

More about Mason and Groupon
  • In 1999, Mason moved to Chicago’s North Shore to attend Northwestern University, where he studied music. (Mason, a pianist from a young age, says that he wanted to pursue his dream of becoming a rock star.)
  • Mason graduated from college in 2003 without a clear plan. He took a job as a software developer at InnerWorkings, where he met Eric Lefkofsky, a prominent Chicago investor and businessman. 
  • April of 2010: Groupon received a $135 million cash infusion from investors, including Russian Internet billionaire Yuri Milner and several prominent Silicon Valley firms. 
  • Mason and his team began snapping up Groupon’s copycat competitors like candy. In June they entered Chile and Brazil. In August they expanded to Russia and Japan. Then Singapore, South Africa, India, the United Arab Emirates, and China. Today, Groupon is in 46 countries and more than 500 cities.
  • In Australia a daily-deals company called Scoopon filed for the Groupon trademark and also purchased the Australian Groupon domain name. Mason offered the owner of the company nearly $300,000 for the site and the trademark. Scoopon balked, and Groupon sued. With no other choice, and not wanting to lose the Australia market altogether, Mason decided to launch in Australia under a different name entirely, Stardeals—while remained tied up and inactive under unrelated ownership. (The lawsuit is still pending.) Similar scenarios began playing out all over the map.
  • Groupon is still working to secure the Chinese version of, currently operating in China under the name GaoPeng. A retired government worker in Bangalore bought the Indian Groupon Web domain and is running a business that looks nearly identical to the U.S. Groupon. In Ireland, Groupon successfully brought charges before the World Intellectual Property Organization to force a subsidiary of the Irish Times Group to give up the Irish version of the Groupon domain name.
  • Domain squatting is a common pitfall of the Internet world, but it can be especially problematic with a digital business that is easily replicable.
  • In November of 2010, Google made a $6 billion acquisition offer for Groupon.

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