Groupon Readies for An I.P.O.

http://dealbook.nytimes.com/2011/01/13/groupon-readies-for-an-i-p-o/

by ssclafani • 16 years ago

46 32 16 years ago

dealbook.nytimes.com

It's going to be a very interesting couple of years in the startup world, simply because of the potential IPO's in the pipeline: Groupon, Facebook, LinkedIn, Yelp, Twitter, Zynga...

As those companies have huge exits, there's going to be a lot of young, early employees that are able to cash out and become angels or work on their next huge startup.

Some people say it's a bubble. I'm thinking/hoping it's more on the lines of a Renaissance.

sabat2• 16 years ago

Some people say it's a bubble. I'm thinking/hoping it's more on the lines of a Renaissance.

At least some of those companies have actually turned a profit and stand a chance of maintaining one. I have my doubts about Groupon's and Zynga's medium-to-long-term chances, but I've been wrong before.

there's going to be a lot of young, early employees that are able to cash out

Early employees will probably not be able to cash out for at least six months; that's the standard waiting period after an IPO. Ironically, people who get friends-and-family deals pre-IPO are the most likely to get rich quickly (if they sell on an early uptick).

redthrowaway2• 16 years ago

I have every confidence that Zynga will succeed. Don't get me wrong, I hate them with a passion, but they are incredibly smart and have a very successful model. Their games are built to be addictive, not fun. They've taken everything that made people lose months of their lives to WoW and condensed it, according to recognized psychological principles. They're cynical, but they'll manage to succeed regardless of what gets thrown their way.

ghshephard2• 16 years ago

Re: "there's going to be a lot of young, early employees that are able to cash out and become angels or work on their next huge startup."

This process actually started happening a few (2) years ago, and has been picking up the pace increasingly in the last six months. Much of the recent rounds of financing has been going to early stage employees who are selling off as much as 30% of their holdings in these "Pre-IPO" rounds.

If the IPO windows doesn't open up again, fairly soon, many of these employees will be fully vested and onto their next thing before their company goes public.

clofresh2• 16 years ago

Why would you prepare for an IPO so quickly after closing a $950 million funding round? Is their burn rate that high?

swombat2• 16 years ago

They didn't raise $950m to extend their runway. No one raises this sort of money for that. They're already highly profitable. They raised that money to hire a metric ton of salespeople to expand the business even faster.

jnovek• 16 years ago

Not to mention buy out every Groupon clone in a market that they're not already in.

sage_joch• 16 years ago

"metric ton of salespeople"

So about 12 salespeople? ;)

qq66• 16 years ago

Because your stock is overvalued and you want to sell as much as you can in both private and public markets?

clofresh2• 16 years ago

Yeah, that was my hunch as well. Shit's gonna hit the fan once retail investors start biting on overvalued companies...

anigbrowl• 16 years ago

Updated story suggests $15-20 billion. I must admit to being astonished by both the valuation and th size of the company (3100 staff). I thought they were foolish to spurn Google, but if these rumors prove accurate that'd make me the foolish one.

ghshephard2• 16 years ago

I've come to the conclusion that Groupon is going to win.

The coupon business is an initial (albeit profitable) component of their long(er) term strategy. They will use a massive part of their recents rounds of financing + the organic revenue they get from their day-day business to create an increasingly larger direct sales force, that lets them step in and become the Online version of the Yellow Pages.

For whatever reason, Google never really became the "Trusted Local Directory" of businesses - Don't get me wrong, I use them 10-15 times a week to look up businesses - but lots of local companies have figured out how to game Google's local Business lookup - and, when I'm looking for a reliable Locksmith, Plumber, Flower Delivery, Etc... Google doesn't deliver like the yellow pages always did.

Part of that is inherent to the mechanism - Google does algorithmic analysis, which isn't completely effective when trying to determine whether you are dealing with a up-and-up storefront.

But most of that is feet on the ground.

The yellow pages had a Massive Direct Salesforce + a filter - Typically only "real" companies would bother to invest in a Yellow Pages Ad, because they were the only ones who could justify the cost. A company in the Yellow pages was a real organization, that had been visited by a local salesperson. You couldn't SEO a placement into the Yellow Pages.

Groupon is going to become the new Yellow Pages. For a while, I thought it was going to be Yelp, but (A) their business model, publishing criticisms of businesses, was always at odds with their customers interests (and they took a lot of heat when people got sensitive to that conflict of interest) and (B) they didn't raise enough money, or hire enough people, quickly enough.

Groupon is aligned with the businesses (their customers), and is growing quickly enough to win the market. They will have a direct sales force that will reach into every major metropolitan area - and, within six months, there will be a Groupon index of local businesses.

That's why Groupon is worth $15B.

jarek2• 16 years ago

If I was looking for a reliable locksmith/plumber/flower delivery the first resource I would consult would be local friends/acquaintances I trust. Picking a random company from 50 yellow pages listings is crazy, and so -- currently -- is depending on Google to pick out the right one. Social seems to intuitively be the obvious direction to go.

(I don't know how social Groupon is. I stayed away so far because I have no interest in deals of the day.)

khafra• 16 years ago

Groupon's sociability level anecdote: I have ~100 facebook friends; one of them posts a groupon deal she considers interesting once every few weeks.

Reliable local service anecdote: I'm looking to rent a house, and after finding the first page of Google results for "rent house" to be spam, have restricted my search to Craigslist.

chopsueyar3• 16 years ago

What sort of barriers to entry does Groupon have against a local online version of itself, one that would know the city better, since its the people that live there work for that entity?

What about angieslist.com?

chopsueyar3• 16 years ago

Answering my own question:

http://www.slideshare.net/dahlenc/groupon-business-model

Slide 9

Negatives: Lack of network effect No technology barriers to entry No switching costs for merchants and customers Scaling is expensive(sales people on the ground) High cost of customer acquisition

Pluses: Brand Economies of scale (winner takes most)

blantonl• 16 years ago

Groupon to me is just the social version of ValPak.

dstein• 16 years ago

The problem is Silicon Valley venture capitalism might be in a bubble right now, but the broader stock market is not (yet). I'd be surprised if the open market doesn't see straight through these valuations.

knowsnothing6132• 16 years ago

it depends on how liquid the shares are. If 80% are controlled by insiders,and institutions loyal to insider, they can run up the stock, despite the incongruity with fundamentals.

case study: Open Table

http://www.google.ca/finance?q=open+table

It has a P/E of 157!!!!! And it's still going strong. Likely because it's getting pumped by thin trading.

It's the classic pump n dump. Run up the stock, and try to unload it to dumb money like mutual funds, and pension funds aka (your money).

Groupon's P/E can run just as high. It depends on how high they have to push it to entice dumb money, which is likely why they are pushing out a pre-IPO PR blitz to frame the story beforehand.

This was all done in Web 1.0. Same bag of tricks. Let's see if the average American has learned anything.

zackattack• 16 years ago

You seem confident. Are you taking a short position on Open Table? I doubt it. Put your money where your mouth is.

code_duck• 16 years ago

So when is facebook going to start with 'Facebook Local Deals' or something?

vaksel• 16 years ago

to me that sounds like a major case of a company cashing out before the bubble bursts. They don't need the money, and they definitely don't need the regulatory oversight that the IPO brings. They just raised close to a billion for a supposedly massively profitable business. They have plenty of cash on hand.

It's a massive ponzi scheme where the businesses have been convinced to take massive losses with the hopes of making them up later. Very few actually get the results they are promised by the sales people.

On the buyer side...it's just lame...it's the same type of deals over and over again, and I wouldn't be surprised if their customers only last a few months before they internally label Groupon as spam.

don't get me wrong, Groupon is a massively profitable business, but I think they want to cash out while everyone thinks they are worth 20-30 times more than they actually are.

chopsueyar3• 16 years ago

Does Groupon own any patents?

littleidea• 16 years ago

You can always tell there is a bubble when people are trying to convince themselves and each other that their isn't.

I predict Groupon will be a 'venture math' win and an epic failure as a sustainable business. (Especially once that anyone who would give a damn has cash)

Groupon Readies for An I.P.O.

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