Some retailers launched online deals well in advance of Thanksgiving, Black Friday and Cyber Monday.
Going public could value the company at up to $15 billion.
Groupon Inc., which earlier this week closed a $950 million funding round, is reportedly meeting with bankers this week to discuss an initial public offering that could have a valuation as much as $15 billion.
That valuation comes a little more than a month after the daily deal site in December reportedly rejected a $6 billion offer from Google Inc..
Going public now would allow Groupon’s investors to cash in at a time when group-buying sites are at the peak of their popularity, says Greg Sterling, an analyst and the founder of Sterling Market Intelligence.
“It seems as though these deals are settling into a permanent place in local advertising, but in a year they may not be quite as hot as they are today,” he says. “Groupon might as well take advantage of their momentum and positive press coverage.”
The reported valuation, which is two and a half times greater than Google’s reported offer, reflects investors’ eagerness to buy into the next big thing, says Lou Kerner, vice president equity research at Wedbush Securities.
“You’ve got a company that’s growing incredibly rapidly and you have a stock market that is very receptive to companies like this,” he says. “When a company is on a rapid growth curve like Groupon, investors aren’t paying based on 2009 or 2010 financials, they’re paying for what they think will be the results two or three years down the line. There’s a lot of guesstimating there, which is where you get a wide range of valuations.”
Groupon’s growth is contingent on it maintaining its hold as the market leader, which requires that they grab market share in a variety of ways all at once, he says.
“They’re trying to expand their existing subscriber base, they’re trying to get their existing customers to buy more often, they’re expanding organically around the world and they’re expanding through acquisitions,” he says.
Even with those efforts, there is more room to grow, says Sterling.
“You’re starting to see specialized vendors, like legal profession or religious group daily deals,” he says. “Those competitors’ existence shows that Groupon is leaving money on the table by not catering to those groups.”
While Sterling believes that, if Groupon does go public, investors will clamor for stock causing the share price to rise, it’s continued success is reliant on its management of its rapid growth.
“Their challenge is managing and keeping together a company that is growing so rapidly,” he says. “But if they’re able to succeed in places like China, their numbers could be staggering. But first they have to figure out how you manage the formula with local employees and a local sales force.”