Groupon Seeks $11.4 Billion Market Value in Initial Offering

Groupon Files to Raise $540 Million in IPO
Since filing to go public , Groupon has drawn regulatory scrutiny, restated results and lost executives. Photographer: Tim Boyle/Bloomberg

Groupon Inc., the largest online-coupon site, is seeking a valuation of $11.4 billion in its U.S. initial public offering, less than half the $25 billion it considered earlier this year after internal missteps and stock-market swings left some investors leery of the stock.

The Chicago-based company is offering 30 million shares of Class A common stock at $16 to $18 apiece, a regulatory filing today showed. At the high end of the range, Groupon would raise $540 million, compared with the $750 million it filed to raise in June. The total valuation is based on 632.8 million outstanding common shares after the offer.

The lower valuation reflects waning investor demand, said Michael Holland, chairman of Holland & Co. Since filing to go public, Groupon has drawn regulatory scrutiny, restated results and lost executives. The company delayed plans to pitch the offering to investors in September as stock markets sank and it needed time to address regulators’ questions about an unconventional accounting method, people with knowledge of the matter said then.

“Investor perception of Groupon’s attractiveness has deteriorated significantly, as evidenced by the price,” said Holland, whose New York firm oversees more than $4 billion. “It’s not a favored time to be coming to market with an IPO, so if they want to persist and come to market, they’re going to have to meet buyers’ demands.”

Meetings With Investors

The company is set to meet with investors as soon as the week of Oct. 24 to gauge demand for the IPO, people familiar with the matter have said. The offering is set for completion on Nov. 3, Bloomberg data show.

Groupon’s IPO would be only the fourth in the U.S. since the beginning of September as slumping stocks and high volatility made it difficult to go public. Still, companies have continued to file for offerings this year, leading to the biggest U.S. backlog in a decade as of the end of last quarter, according to Renaissance Capital LLC, the Greenwich, Connecticut-based IPO research and investment firm.

The IPO will leave almost 5 percent of Groupon’s common shares public as the coupon provider follows Internet companies including LinkedIn Corp. and Pandora Media Inc. in offering less than one-tenth of their stock to the public. A so-called “low float” limits the amount of shares available to meet investor demand, boosting the stock price.

Price to Sales

The high end of Groupon’s offering range would value the company at almost 9 times sales over the last 12 months, calculated using financial results disclosed in the filing. That’s less than half the price-to-sales multiple of about 24 for LinkedIn, Bloomberg data show. Shares of the Mountain View, California-based professional-networking site have almost doubled since LinkedIn debuted in May.

Pandora Media Inc., the online music provider that went public in June, is valued at about 12 times sales over the past four quarters, Bloomberg data show.

Groupon’s value may be difficult for investors to predict “given it’s a new business model where long-term profitability and margin levels are unclear,” said Jack Neele, a fund manager at Robeco Groep NV, which had the equivalent of about $208 billion under management at the end of last year.

All of the shares in the offering are being sold by Groupon, which will use the estimated net proceeds of about $479 million, its filing shows. Groupon may use the cash for acquisitions, the filing said.

Early Discussions

Executives met with bankers to discuss an IPO valuing the company at as much as $25 billion, people with knowledge of the discussions said in March. Groupon announced a $950 million round of financing, including venture-capital and private-equity investment, after rejecting a $6 billion takeover bid from Google Inc. in December.

Groupon reported revenue of $430.2 million in the three months through September, an increase of 9.6 percent from the quarter that ended in June. That represents slower growth than in the second quarter, when sales rose 33 percent sequentially.

The net loss in the third quarter narrowed to $10.6 million from $49 million a year earlier, according to the filing. The net loss in the nine months ended Sept. 30 was $238.1 million.

The number of subscribers to Groupon’s e-mail list climbed 24 percent during the third quarter to 142.9 million, the filing showed. The company said a total of 29.5 million people had purchased its coupons as of the end of September.

Morgan Stanley, Goldman Sachs Group Inc. and Credit Suisse Group AG are leading Groupon’s offering. The stock will trade on the Nasdaq Stock Market under the symbol GRPN.

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