Groupon Said to Discuss IPO Valuation of Up to $25 Billion

Groupon Inc. has held talks with banks about an initial public offering that would value the online-coupon company at as much as $25 billion, according to two people with knowledge of the discussions.

The two-year-old startup’s IPO may happen this year and is unlikely to assign Groupon a valuation of less than $15 billion, the people told Bloomberg Businessweek. They asked not to be identified because the talks were private.

Groupon, the top provider of online daily discounts, has pushed into hundreds of new cities and doubled its subscriber base over the past three months. That’s helped its valuation soar since December, when it turned down a bid from Google Inc. (GOOG) for $6 billion. The company now has 70 million users and reaches more than 500 markets, up from 300 when Google made its offer.

Closely held consumer Internet companies like Groupon are “being valued as though they are going to be the next Google or EBay or Amazon,” said Claire Enders, the founder of London media-consulting company Enders Analysis. “But their business models may reach their limits a lot more quickly, or not work in as many markets.”

Groupon was valued at about $1.3 billion last April, when it raised $135 million from investors, including Digital Sky Technologies. It contemplated more funding at a $3 billion valuation in November, shortly before Google’s offer. An investment of $950 million, completed in January, pegged Groupon’s worth at $4.75 billion.

Clothes, Nail Salons

Goldman Sachs Group Inc. (GS) and Morgan Stanley (MS) have discussed handling an IPO for Groupon, a person familiar with the talks said in January. Those meetings focused on a $15 billion valuation for a future IPO, the person said.

A $25 billion valuation would put Groupon’s worth above Google’s when that company went public in 2004. Google, the world’s biggest Internet-search provider, had a valuation of $23 billion at the time of its IPO in August 2004.

Julie Mossler, a spokeswoman for Groupon, declined to comment.

Groupon, based in Chicago, offers daily discounts of as much as 90 percent from local businesses, such as restaurants, nail salons and clothing stores. It then keeps a portion of the revenue.

While Groupon leads the daily-deal market, it faces mounting competition from rivals such as LivingSocial. That company is close to raising as much as $400 million in funding that would value it at more than $2 billion, two people with knowledge of the talks said this week.

Even so, Groupon may have an edge as the biggest company in the industry, said Alex DeGroote, a media and technology analyst at Panmure Gordon & Co. in London.

The daily deals business “is hot as anything, and no one knows where it’s going to tap out,” DeGroote said. “The experience of Internet companies shows that margins and profitability tend to accrue very substantially to the market leader.”

To contact the reporters on this story: Douglas MacMillan in San Francisco at dmacmillan3@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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