Groupon sets $750 million target for IPO

Group-buying giant Groupon is hoping to raise $US750 million as it prepares to list for an IPO, with an industry expert expecting the gap in the local market to widen.

Groupon’s announcement comes on the back of LinkedIn’s successful float, prompting widespread speculation the tech sector is on the brink of another dotcom boom.

According to the company’s filing, Groupon has more than 83 million subscribers – although only 15 million have bought a coupon – and there have been 70 million coupons sold.

As of March 31, 2011, it had more than 56,000 merchants, compared with just 2,900 one year earlier.

There is no share price listed in the filing but reports suggest the company is aiming for a valuation of between $US20-25 billion.

The report also claims the $US750 million figure is just a placeholder and that instead, Groupon may aim to raise as much as $US1 billion in the float.

According to Groupon co-founder Andrew Mason, the company is “better positioned than any company in history to reshape local commerce”.

Groupon turned over barely $30 million in 2009, but that soared to a massive $US713 million in 2010.

Growth exploded again in the first quarter of this year to revenue of $644 million. The company has more than 8,000 employees and is now operating in more than 40 countries.

Despite these impressive growth figures, Groupon is losing money. Its pursuit of rapid expansion across the world saw it lose $413 million in 2010, and this year alone it has already lost $113 million on revenues of $US644 million.

There are several reasons for these losses, including the acquisitions and international expansion it says is critical for growing revenue.

Sam Yip, senior research manager at Telsyte, says Groupon’s IPO will trigger major changes within the Australian market.

“I think there’s going to be two distinct markets in Australia. There’s going to be the large sites, which are the top five and do 80% of the revenues. They’re in a league of their own; they’re earning between $8 million a month onwards,” he says.

“And then we’ve got the smaller players and the gap is quite significant because the smaller players are doing anywhere between $100,000 a month to just under a million.”

“I think the larger players will continue to offer a wide range of offers. They’ll have the ability to offer a wider range of locations and deal types. The smaller players will have to concentrate on niche [markets] just to stay afloat.”

Yip says he expects to see consolidation in the market, although not in the near future.

“I think the sites are still in the build phase; they’re still rolling out locations and there’s still a lot of organic growth happening,” he says.

“It’s going to widen a little bit [more] but the gap is already quite large… I think there’s going to be a lot of competition for merchants.”

“I think the larger sites have the ability to walk through and provide the merchants with lots of value-add services such as TV, online, even SEO.”

“Smaller players probably won’t have that capability to do so. However, the smaller players are in a great position to be flexible with the merchants.”

“There’s also a lot of pressure on margins at the moment and the larger players have margin restrictions at times.”