Groupon's scaled back IPO to raise up to $540 million

By Alistair Barr

The company aims to sell 30 million shares, or less than 5 percent of the company, at between $16 and $18 each, according to a regulatory filing on Friday.

The midpoint would value Groupon $10.8 billion, far less than the $20 billion initially expected but still above the $6 billion that Google Inc offered to pay for the business last year.

Despite the lowered valuation, some analysts said they thought the IPO, which is expected to come to market in early November, could still struggle. They point to questions over the long-term viability of a business that faces fierce competition and low barriers of entry.

The fact that Groupon has changed its accounting twice under pressure from regulators, and lost two chief operating officers this year, also has not instilled confidence.

"This offer strikes me as very, very unattractive," said Josef Schuster, founder of Chicago-based IPO research and investment house IPOX Schuster. "I think it's over-valued."

He said the scaling back of the size of the IPO and the small float suggests that there will be more shares to come to market. Depending on demand, the IPO will raise between $480 million and $540 million, compared with a previous target of $750 million.

The deal is one of the most closely watched IPOs in recent years. If it succeeds, it will bode well for other companies also considering going public, including social gaming company Zynga and online social network Facebook.


The online daily deal industry has exploded into a multibillion-dollar business since Groupon was launched in late 2008. That growth has attracted hundreds of rivals, including giants like Google, Facebook and Inc.

One of the main question marks over Groupon has been whether the company can become profitable any time soon. Friday's IPO filing disclosed third-quarter results and some progress toward profitability.

On a pro forma operating basis, which excludes stock-based compensation, Groupon said it lost $2 million in the third quarter, down from $62 million in the second quarter.

Groupon's North American business generated a pro forma operating profit of $19 million in the third quarter.

Groupon's International segment lost $21 million in the third quarter, compared with a pro forma operating loss of $52 million in the second quarter.


Groupon reported gross billings of $1.16 billion in the third quarter, up 25 percent from the previous quarter and 496 percent from the same period last year.

Gross billings represent the money Groupon collects from selling online discount coupons. The company pays a lot of this money later to the merchants participating in the deals. What is left over is reported as net revenue.

Groupon said third-quarter net revenue was $430 million, up 10 percent from the second quarter and 426 percent from a year earlier.

The company said it had 30 million customers at the end of September, up from 23 million three months earlier. Customers are subscribers who have bought one of Groupon's coupons.

Repeat customers, people who have purchased more than one Groupon, climbed to 16 million in the third quarter from 12 million at the end of the second quarter, the company also said in its filing.

Average revenue per Groupon sold was $13 in the third quarter, up from $12 in the previous quarter. The average number of Groupons sold per customer was 4.2, up about 5 percent from the previous three-month period, according to the filing.

Morgan Stanley, Goldman Sachs & Co and Credit Suisse are leading the underwriters on the offering. The shares are expected to trade on the Nasdaq under the symbol "GRPN."

(Reporting by Alistair Barr in San Francisco, additional reporting by Clare Baldwin in New York; Editing by Bernard Orr, Lisa Von Ahn and Steve Orlofsky)