Stephen Foley: Groupon pushes on with its premature flotation plan

 

US Outlook: Andrew Mason has put on a suit. His company has slashed its marketing spending to focus on turning a profit. Existing investors, who have already got rich many times, have agreed not to cash in any more at the flotation, after all. And still, the questions remain over whether Groupon is ready to go public.

It is determined to try. The company put out a much fuller prospectus yesterday, saying it planned to sell $480m-$540m of new shares to fund the business in a stock market offering on 4 November that will value the company at up to $11.4bn.

That is a far cry from the $20bn valuation being bandied about just a few months ago, when social media sensations like LinkedIn where making rocket-like debuts and Groupon was the hottest prospect of the autumn flotation season.

The difference between then and now is that we have had a chance to root around amidst the inner workings of the company's finances, and to realise that Groupon is far from proving it has developed a viable business (let alone one worth in the billions of dollars).

The company is not even three years old and it has built a vast worldwide sales infrastructure to sign up customers to receive a daily email and local merchants to use the service to offer money-off deals. Six out of seven of its 143 million subscribers arrived in the past year. Fewer than 30 million of them have purchased a deal. Many merchants find the results from using Groupon as a marketing tool to be underwhelming (or overwhelming). The data on repeat users is too little to model the future, even if there weren't scores of new competitors copying Groupon's idea.

The float process has revealed immaturity in other areas, too. Mr Mason, who only recently celebrated his 30th birthday, fired off an intemperate email to staff complaining about negative coverage of the company and revealing new financial data that should have gone in the prospectus. That document itself has gone through several iterations, as regulators forced Groupon to strip away layers of obfuscating accounting tricks.

Now Mr Mason is back on the round, touting the company's prospects to investors, flanked by executives recruited from Amazon, with the clear message that this company will change local marketing the way Amazon changed retailing. Groupon may already have sparked a revolution. That does not mean it is worth $11.4bn.

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