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The Groupon IPO

The Groupon IPO. The Challenges in Communicating Value. from $20 billion. Buy!. Today’s Deal. Introduction Company and industry background Challenges facing the Groupon IPO Discussion Questions. Introduction. June 2, 2011…The IPO Begins.

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The Groupon IPO

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  1. The Groupon IPO The Challenges in Communicating Value • from • $20 billion Buy!

  2. Today’s Deal Introduction Company and industry background Challenges facing the Groupon IPO Discussion Questions • Introduction

  3. June 2, 2011…The IPO Begins Groupon files registration with the SEC to issue shares to the public Selling a 5% stake in the company Looking to raise ~$1 billion Values Groupon at ~$20 billion • Introduction Source: Wall Street Journal

  4. Groupon files for IPO……some analysts are optimistic “Although there are risks involved in daily deals and challenges for these companies, local commerce is a huge untapped market... It's very competitive and not all companies will make it, but there's a lot of money to be made.” • JeffreyGrau • Introduction Source: Reuters

  5. Groupon files for IPO… …some analysts have concerns “There is no rational math that could possibly get anyone to the valuation Groupon thinks it deserves. This IPO game isn't about finding value, it's about finding a greater fool who actually believes the valuation is true. Trust me, you will be the fool.” • SucharitaMulpuru • Introduction Source: Reuters

  6. Groupon’s Founding and History • Nov ‘07: Mason starts The Point • Oct ‘08: Groupon posts first offer • April ‘10: Initial expansion into foreign markets • Oct/Nov ‘10: Rejects buyout offers from Yahoo! and Google • Currently 9,600 employees and offering deals in 45 countries Andrew Mason CEO &Co-Founder • Background

  7. The Groupon Culture • Off-beat, quirky, laid back, different (and proud of it) • “We want the time people spend with Groupon to be memorable. Life is too short to be a boring company. […] we seek to create experiences for our customers that make today different enough from yesterday to justify getting out of bed.” • Inside jokes in deal descriptions • “Like planet earth, pizza contains morsels buried in its outer crust that can be pieced together to form a crude brontosaurus. Partake in culinary archeology with today's Groupon to Pizza D.O.C..” • “Our customers and merchants are all we care about” • Background Source: Groupon website, SEC Form S-1

  8. Business Model Overview Deep discount (50%+) Minimum sales to make the offer valid Limited time to purchase and redeem the coupon Deals offered by local businesses Groupon takes large portion of coupon revenue • Background

  9. Huge Margins, Low Barriers to Entry • Background

  10. Foreign Expansion &Legal Challenges 57.3% of revenue from international operations Domain squatting Copycat sites • Background

  11. Why and When to Go Public… Groupon says… “We intend to use the net proceeds to us from this offering for working capital and other general corporate purposes, which may include the acquisition of other businesses, products or technologies.” Need for funding to continue to expand Opportunity for VC/PEinvestors to monetize Traditionally, demonstrated record of profitability prior to IPO • Background Source: Jay Ritter, University of Florida

  12. The Long Road to Go Public • Respond toSECcomments • Syndication • Assemble the team Buy! • Road shows • Retain underwriters • SEC review • Final prospectus • S-1 becomes “Effective” • Present preliminary prospectus • Perform due diligence 6 to 12 months • Background Source: PricewaterhouseCoopers

  13. Culture Clash with Investors? • How much does Groupon care about shareholder value? • Can Groupon be different and still be credible? • Will Groupon change its communications with customers, merchants, or employees? • How can Groupon provide insights to investors without compromising competitiveness? Investors demand credible, reliable information • Challenges

  14. Meet Jason Child Jason Child Groupon CFO Biography – Groupon Website “The only businessician in a family of artists, Jason Child has run 14 marathons, each one a kinetic sculpture of physical art. With his wife and two children strapped to his back, Jason also has skied down Austria's toughest mountain without slipping and falling into a coma even once. Before fighting off a midlife crisis and joining Groupon, Jason worked as CFO and VP of Finance for Amazon.com's international division, and he has lived and worked in Munich, Tokyo, and Seattle. Jason enjoys traveling with his family, and one day hopes to complete a whirlwind tour of every Groupon country either for business purposes or with a juggling troupe composed of his cousins and father.” • Challenges Source: Groupon website

  15. Meet Jason Child Jason Child Groupon CFO Biography – SEC Registration Statement (Form S-1) • Groupon CFO since December 2010 • March 1999 - December 2010, positions with Amazon • VP of Finance, International • VP of Finance, Asia • VP of Finance, Amazon Germany • Director of Investor Relations • Director of Finance, Worldwide Application Marketing and Business Development • Global Controller • Prior to Amazon, 7+ years at Arthur Andersen • CPA and consulting manager • BA, Foster School of Business at the University of Washington • Challenges Source: SEC Form S-1

  16. Measuring Value at Groupon • “We don’t measure ourselves in conventional ways” • Three primary financial metrics tracked internally • Gross profit – Gross billings less Payments made to merchants • Free cash flow – Operating cash flow less Capital expenditures • Adjusted consolidated segment operating income (loss) – Operating income before new subscriber acquisition costs • Challenges Source: SEC Form S-1

  17. Groupon Financials • Challenges Source: SEC Form S-1 (initial filing)

  18. Violation of quiet period Andrew Mason says to employees… I’ve never been more confident and excited about the future of our business. For now we must patiently and silently endure a bit more public criticism as we prepare to birth this IPO baby… having seen the ultrasound, I can promise you [it] is not one of those uglies. Quiet Period From the filing of S-1 until it becomes “effective” Banned from promoting your company publicly

  19. Restatement of Financials • Challenges Source: SEC Form S-1 (amended filing)

  20. Evidence of strong tech IPO market PwC says… This is one of the best first quarters we’ve seen in years, demonstrating the increasing attractiveness of the US IPO markets for generating capital and providing liquidity for financial sponsors 5/19, $4.2B 6/15, $2.6B $80B $15B 1/27, $1.5B 5/24, $8B • Challenges Source: PricewaterhouseCoopers

  21. Market volatility and weak economic outlook Record number of IPOs delayed Groupon files for IPO Zynga delays IPO Groupon delays IPO • Challenges

  22. Discussion Questions Should Groupon proceed with the IPO process? If it should not go public, why not? What issues must Groupon overcome first? If it should go public, what message should Groupon convey to investors in the roadshow? What kinds of investors should Groupon be targeting? • Discussion

  23. Discussion Questions How should Groupon ease investor concerns about its business model and the mistakes it has made in the IPO process? How should Groupon reconcile its offbeat culture with investor expectations? How should Groupon communicate more effectively with its investors in the future? • Discussion

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