#groupon ipo

[markedwards]

I agree with Ben. They should have taken the $6 large from Google and run. 

[andycrellin]

Groupon does OK on IPO, but concerns remain

[shortformblog]

Groupon's IPO downsizes, then upsizes again (just a little bit)

$13.3 billion Groupon valuation ahead of their IPO

$20 the cost of Groupon's shares during its upcoming IPO

35M the number of shares the company plans to sell, up from 30 million

$700M the amount of money the company plans to raise with the IPO source

» It was supposed to be way higher than this: Back when Groupon first floated the idea of their IPO, the expected valuation was $15 to $20 billion, a number which threw investors off and led to allegations that 1) they were overhyped, 2) Groupon was an elaborate ponzi scheme and 3) their IPO is a sign that a fresh tech bubble is on the way. They backed off some of the higher valuations, but then set the price at $20 per share, instead of the expected $16-18. When it finally hits, it's going to be an interesting ride, to say the least.

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[fritfilter]

(via Instapaper)

cough luck cough

[theresourcefulceo]

Market Volatility

The financial markets were more buoyant earlier this year, hence all the IPOs. But then a fair amount of uncertainty, with a negative tone, set in, causing the markets to increase in volatility and become a less attractive option for those seeking to go public via IPOs. Less attractive does not mean the option was eliminated.

When the markets are buoyant they are reflecting optimism and thus, financing is more plentiful. As I've stated before, private equity firms and venture capitalists, among others, can take their companies public, providing them with more options and beginning the trickle down effect. When equity markets are optimistic, debt financing is also easier with investors more open to financing options that don't require myriad covenants (aka safety nets or provisions). Debt financing during this time typically comes with lower interest rates for the same debt that, in a more volatile market would require more.

So Groupon has registered for an IPO and will likely move forward with sales of its shares at a $12 billion valuation. That's down from the $15-$20 billion that it could have gotten had it been ready in April, May or June. C'est la vie. Personally, given how some of the other IPO shares have performed post-IPO, and given the earnings expectations, I think Groupon's $12 billion valuation is much more fitting.

Any thoughts? I'd love to hear them.

[lookbeyondtheobvious-blog]

[chinagrouponclone-blog]

Hey Group Buying analysts, remember Econ 101?

“Stop. Relax. Breathe.”(1) Group buying just began in earnest in the US in 2009 and in China in 2010. The market is anything but mature and therefore the pricing to consumers and the pricing to merchants is likely not in equilibrium. More competitors will come, some will go, some will combine, and others will provide new services and offerings. This is natural.

It is surprising that most commentators on Group Buying don’t mention this front and center. You often hear, “Merchants will not be able to make money at 50% split on 50% off with only 20% of customers returning. Group buying is dead.” Fine, but they would make money at 100% of the split with no discount, right? But then there would be no customers. So somewhere in the middle, my friends, lies an equilibrium.

This is a big risk for Groupon, and something they do mention clearly in their recent S-1 filing. If the payment terms or the split with merchants change, Groupon’s business could be impacted significantly. In China, we see margins of ~10% with local service deals. Some competitors (namely Lashou and other big funded players) will take 1% or less on a deal! But the discounts in China are bigger, so the long term story for the merchants may still be a rise in price and a reduction in demand. So the craze will soften and the industry cool down. So be it. It’s the market.

In order to look at this quantitatively, we have created a mini model that takes existing assumptions and models out the profitability of a typical merchant under various discounts, revenue splits, % customers returning, and more. The bottom line? Merchants can make money under reasonable assumptions, but not with the 50/50 (discount/split) we are currently seeing. We see no strong reason to suspect the quality of Group buying customers will change anytime soon. Consider the following chart, and please feel free to download the model, play with it yourself, and post your own conclusions in the comments.

In the US, studies have shown customers repeat at 20%. Assuming 40% merchant COGS implies that ultimately Groupon margin should be around 35%, less than Groupon's often quoted 50%. Of course different businesses have difference COGS, customer behavior, and other factors to consider.

Note 1: These outputs assume 50% discount to consumer.

Note 2: Adjusting the model to 30% of original price makes requires <= 30% restaurant COGS to be profitable (again, at 20% repeat customer rate).

Note 3: This does not include extras purchased by customers in visit, although the % repeat could be adjusted to include these extra sales.

Even in communist China we can’t (yet) force our merchants to take our deals. Less than 1/5 of merchants we pick up the phone to call will field the call, much less do a deal with us. So Group buying is not dead because the majority of current Gorupon merchants don’t make money. It just means that when the long line of merchants eager to work with Groupon has run down, payment terms will change.

Then Groupon will be less profitable, group buying customers will be fewer, and the Andrew Mason star will shine a little less. But at least within the next 5-10 years, I would be surprised if it went out for good.

Where do you see the economics of Group buying headed in the US? In China? Please discuss its viability in the comments.

(1) Quote from Mark Zuckerber to Facebook users, circa 2007 when newsfeed first came out and users revolted.

(2) Email us at Chinagrouponclone at gmail dot com if you would like to take a look at the model.

[youarenotrational]