Chicago daily deals pioneer Groupon priced its initial public share offering at $20 per share late Thursday, valuing the fast-growing company at $12.6 billion – or twice the reported amount it turned down in a Google takeover offer late last year.
The IPO will enable Groupon to raise $600 million, making it the second-largest Illinois technology public offering behind online digital maps company Navteq Corp.’s $862 million money-raising offer in August 2004.
A video of Groupon CEO Andrew Mason’s pitch to investors in the past two weeks shows the boyish-looking entrepreneur, usually attired in hoodie and jeans, dressed in a suit and tie, explaining not only the Chicago company’s tremendous growth but its proprietary technology that figures out optimum deal prices; subscribers’ deal-buying histories; deal preferences by gender, and customers’ habits by geographic location.
The pitch points to Groupon’s expansion into offering loyalty programs and location-based mobile deal offerings, and it’s heavy with references to Amazon.com, where Groupon’s chief financial officer and senior vice president of product previously worked. Amazon has upended critics with its unconventional strategies.
Groupon cites its 125 million coupons (or Groupons) bought worldwide and 190,000 merchants featured since its November 2008 launch, as well as its 142 million subscribers, 300,000 deals offered each day and 10,400 employees.
Will the pitch work? And because Groupon is selling such a small stake – about 5 percent of its outstanding shares – and because no one knows how quickly the initial stock buyers will sell their holdings, what happens to the stock after market?
Stock watchers will find out Friday when Groupon starts trading under the ticker symbol GRPN.
It has been a contorted journey, with Mason and co-founder Eric Lefkofsky boasting of the company’s success during a “quiet” period; two chief operating officers and other senior-level managers departing; Groupon dropping a controversial accounting method that halved its reported 2010 revenues, and salespeople filing suit claiming they haven’t been compensated legally for overtime. Further, top executives will maintain control of Groupon after its IPO – and after they’ve already cashed out about $1 billion.
Some analysts and market experts have openly called Groupon’s business model a Ponzi scheme, while others laud its market-leading status and aggressive expansion. And while Lefkofsky and co-founding investor Brad Keywell have pledged to invest $200 million over the next 10 years to help tech startups through their Lightbank investment group, they’ve also attracted critics of their involvement in bankrupt Chicago promotional products firm Ha-Lo and its ill-fated early 2000 takeover of e-commerce startup Starbelly.com.
Groupon also faces increasingly tough competition from major rivals such as Living Social, Amazon and Google. Last week, Google announced that its Google Offers business would distribute deals from 15 other daily deal sites.
Morningstar analyst Rick Summer, who thinks Groupon’s real value is closer to $5 billion, said the company could show a profit in 2013 but will have to continue to make massive marketing investments to do so.