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Get Ready for Groupon's IPO Feeding Frenzy

Financials show explosive revenue growth curbed by losses

Photo Illustration: Alfred Maskeroni

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Get ready for a public market circus. Groupon, the fastest growing company in history, filed its S-1 Thursday, and if the feeding frenzy that was the LinkedIn IPO is any precedent, it's safe to assume this one will get nuts.

The Chicago-based daily deals company, which will take the ticker symbol GRPN, will raise $750 million in an IPO underwritten by Goldman Sachs, Morgan Stanley, and Credit Suisse. Groupon's valuation wasn’t revealed in the filing; it’s been estimated in reports and on secondary markets to be as high as $25 billion. In a report filed before LinkedIn's public offering took off, Bloomberg wrote that Groupon's IPO wouldn’t value the company at greater than $15 billion.

Between 2009 and 2010, Groupon’s revenues increased by 2,241 percent, to $713 million. The company is on track to nearly quadruple that this year—in the first quarter, Groupon made $646 million in coupon sales. However, Groupon was not profitable last year. The company lost $389.6 million in 2010.

The company's explosive revenue growth spawned an entire daily deals industry of more than 250 competitors. After rebuffing a $6 billion buyout offer from Google in December, Groupon has focused in recent months on international expansion through an aggressive series of acquisitions.

Groupon has $1.14 billion in venture backing from a host of investors, including Digital Sky Technologies, Morgan Stanley Venture Partners, Fidelity Ventures, Andreessen Horowitz, Battery Ventures, Greylock Partners, Kleiner Perkins Caufield & Byers, Maverick Capital, New Enterprise Associates, Silver Lake Partners, and Technology Crossover Ventures.

The market's excitement for recent IPOs of Internet-focused startups like LinkedIn has led to frenzied discussion about whether we are in a tech bubble; there may even be a tech bubble discussion bubble. Regardless of bubble-crying naysayers, the hunger for Internet startups from investors is undeniable. Secondary market activity has driven valuations of privately held companies like Facebook, eHarmony, Zynga, Groupon, and LinkedIn far beyond what can be described, based on what little is known of the companies' earnings, as irrational. When LinkedIn took the public market plunge in May, its fervent first-day trading activity made "irrational" seem like an understatement. The company's shares jumped more than 140 percent in its first day, valuing the firm, which on secondary markets had traded at $2.5 billion, at a whopping $10 billion. 

There is of course the possibility that a backlash against all the optimism could begin with Groupon's IPO. Already market commentators have pointed out problems with Groupon's many dividend recapitalizations, for example. The company has used several of its large fundraising rounds to pay dividends to investors and employee shareholders, which can be interpreted by the market as a sign of bad faith in the company's future.