The online discount firm Groupon has decided to proceed with its IPO amid speculations that the hype has scaled down significantly.
The Chicago based company and its bankers are planning on meeting with investors in the next few days to sell them on a deal that valued Groupon at around $12 billion.
The Internet company is planning an initial public offering of less than 10% of the company at a value of $12.5bn (AED45.92bn), according to reports. In May when the company announced plans to go public, analysts were predicting values of between $20bn and $30bn. But a series of missteps by the company and stock market jitters caused by the eurozone crisis have dampened company’s plans.
The lucrative IPO window was closed from mid August to mid October because of overall stock market weakness. There has also been intense speculation from investors over the viability of Groupon?s business model.
The three-year-old firm, founded by the former music student Andrew Mason, sells discounts to local businesses. By some measures it is the fastest growing firm of all time and now has over 50 million subscribers in 43 countries. Last year Google offered $6bn to buy the firm which was rejected as the company seemed to be headed to become one of the biggest IPOs in recent history.
Groupon was one of the most hotly anticipated IPOs in a wave of Internet and social networking issues reminiscent of the Web stock craze of the late 1990s. The company has grown very rapidly by getting local businesses to spend money online to attract consumers. However, by having a simple business model it witnessed a wave of competition from online retailer Amazon.com and other discount deal rivals such as LivingSocial.
In the six months ended June 30, Groupon posted a net loss of $203.9 million on revenue of $688.1 million, compared with a loss of $27.4 million and revenue of $58.9 million a year earlier.
The trouble started for the high flying company in August. Groupon was forced by regulators to pull an unusual accounting metric called ?adjusted consolidated segment operating income? from its offering materials.
Groupon was forced by regulators to pull an unusual accounting metric called “adjusted consolidated segment operating income” from its offering materials. And in September questions from the US’s top financial watchdog the Securities and Exchange Commission led to the firm cutting its reported revenue in half. The company postponed plans for an IPO roadshow to court investors and its chief operating officer left the firm.
Analysts say the company has decided to sell a smaller number of shares because it is better to sell some shares now, rather than cancel the IPO and lose out on any fundraising opportunity.
The size of the sale expected to be completed in the next two weeks, could be $500 million to $700 million. The smaller offering, which would represent well under 10% of the company’s outstanding shares, is meant to cut the amount of stock being sold, hopes that more shares can be sold later at higher prices.
Insiders who had initially planned to sell roughly one third of the stock being offered in the IPO don?t plan to sell at the current lower valuation, according to a source familiar with the sale. The shift was mentioned in the company?s latest public filing without specifying the proportions at issue.
The strategy of reducing the size and proposed valuation of an offering at the start of the marketing period could be a tactic to boost demand. This strategy worked during the IPO last fall of General Motors Co. whose size and price were increased after marketing meetings with investors.
Groupon has hired Morgan Stanley, Goldman Sachs Group Inc. and Credit Suisse Group to lead its offering.