Groupon IPO Gets Very Convoluted (GOOG)

Groupon could be coming public but so far it feels as though it is “later rather than sooner.”  While the WSJ is reporting that an IPO filing could be coming soon with a third quarter IPO launch, we have already been expecting this internally for the last two months.

After the company backed away from what was said to be a $6 billion buyout offer from Google Inc. (NASDAQ: GOOG) back in December, we knew that this one was going to be highly watched.  In fact, Groupon is one of our own TOP 17 IPOs TO WATCH IN 2011.  Whether this really ends up being a Morgan Stanley and Goldman Sachs deal is one thing.  What Groupon needs to consider is its current valuation.  It was just in mid-March that we were given word that the value then could be as high as $25 billion. 

Guess where this is going… Yep, Groupon has risks.  Some risks may even be serious risks rather than just ‘being overly cautious’ risks.  Whether this was ever truly valued at $25 billion or not is immaterial.  It is what is perceived.  The talk today is that Groupon’s valuation is being put in the $15 to $20 billion range.  If you are a true IPO value hawk then the perception could easily be that Groupon has lost value.  It hasn’t really lost value, but $25 billion versus $15 to $20 billion is a discrepancy.

Another risk is the timing.  The third quarter is a long way off and a lot can happen between now and then.  By that time we are going to have Presidential candidates and Congressmen all arguing about how they will fix the woes of the country for the 2012 elections.  Inflationary pressures are building and many investors feel that stocks have either run too much too fast or that the valuations are now getting full.

Groupon also has to contend with what we fear the most: ZERO barriers to entry.  Google has yet to launch a true photo-copy, but any competitor can launch a similar service.  The intellectual property may be solid, but Groupon is going to have an extremely difficult time claiming that they invented online coupons.  Restaurant.com had the exact same model dedicated to dining at least as far back as 2005 or 2006 and many online coupon sites have been around before then.

Groupon is going to be a hot IPO whether we are cautious or optimistic.  What will matter is how high Main Street will allow Wall Street to value the company.  Growth and performance today is one thing, but no barriers to entry can kill a model ahead.  Groupon should seize on the opportunity for an offering sooner rather than later.

JON C. OGG