The barrage of negative press about Groupon, followed by the backlash from the S-1 filing, could potentially derail the IPO of the daily deals frontrunner. While the market observes breath-taking credibility and financial performance somersaults, are those concerns caused by the pragmatic considerations or emotional issues?
Groupon grew into daily deals market leader out of a collective action and philanthropy site ThePoint.com. Groupon hit the big leagues last year when turned down the $6 billion acquisition offer from Google and garnered more than $1 billion in venture funding, thereby setting the stage for its public offering. Groupon boasts its 10,000 employees, offering daily deals to 140 million subscribers across 45 countries, with total 125 million Groupons sold worldwide.
Groupon made a SEC filing to raise $750 million in its IPO back in June 2011. The offering has been slashed down while industry watchers raised serious concerns of its business model, accounting practices, executives departures from the company, and overall market downturn. Groupon encountered difficulty defending itself publicly due to SEC’s quiet period.
On the first day of public trading, the company’s stock value, which initially was pegged at $20, surged to $28 and settled down a bit to close at $26.
Much of what Groupon’s founders, executives, and investors do goes beyond conventional wisdom. Perhaps, filing to go public so early was a misstep, but the thrill was driven by the working capital needs.
Groupon went through a long journey toward an initial public offering. After the concerns were raised, Groupon took an aggressive rather then conciliatory stance, and made a tremendous work to get ready for potentially tough questioning from investors. The highest priority was to show that its business model and growth are sustainable. Groupon spent $613 million on marketing to attract new customers this year and now looks for reduction of those expenses. Groupon expanded its offering beyond daily deals and now sells ticketed events and travel packages.
Groupon hired industry heavyweights (Goldman Sachs, Morgan Stanley, Credit Suisse, and 11 other firms) to go for IPO, and according to SEC filing they will be entitled for more than $40,000,000 in underwriting fees.
In the light of the above, some persistent critics have been puffing up the stories of recent corporate America failures. Others consider Groupon to be too hot to fail.
Ernst & Young, the auditor of Groupon, was cautious and confident while giving an opinion on financial statements of the company.
The prospectus of Groupon tells that the net proceeds from the offering will be disbursed during a 12-month period and much of them will partially be invested in money market funds and investment grade debt securities, in other words they will largely be returned to where they come from.
Does Groupon know how much risk it has piled up? I bet it does. The founders and execs are not interested in taking the money off the table and leaving merchants and many reputable investors at an impasse.