September 22, 2018

Groupon Prices IPO at $16 to $18 a Share

Groupon, the Chicago based company that offers subscribers daily deals at restaurants and stores, is set to go public on November 3rd.

Offering 30 million shares at a range of $16 to $18, Groupon could potentially raise $510 million, with a company valuation of as much as $11.4 billion. If demand exceeds the number of shares initially offered, an additional 4.5 million shares may be made available by the underwriters.

Groupon initially filed to raise $750 million, but concerns about certain accounting practices and ongoing sustainability caused it to scale back.  Even though third quarter losses were $1.7 million, this was less than originally expected, and those losses occurred mainly in international business. North American business saw a profit, with earnings of $18.8 million.

Groupon has 149.2 million subscribers worldwide, seven times more than last year. Of those subscribers, approximately 29.5 million have purchased at least one deal from the site as of the 3rd quarter.

Even though the company has grown substantially larger recently, net revenue has slowed, growing only 9.6 percent in the last quarter to 430.2 million. That being said, Groupon says that it is still getting new subscribers.

This news comes as Groupon prepares to go on a two-week roadshow, hoping to attract potential investors. While looking to generate great interest in the IPO, Groupon is also aware that there may be tough questions from investors. Today’s prospectus hopes to quell any doubts about its sustainability, noting that the number of coupons sold per subscriber is up 27 percent from year to year, to 4.2. At the same time, the average revenue generated per coupon has grown approximately 31% over the same period last year.

But as Groupon tries to attract new subscribers by expanding the type of deals it offers, to include ticketed events and travel offers, these kinds of products bring in a lower profit margin per deal. Even though the yearly revenue has increased, the actual revenue per subscriber dropped in the third quarter to $3.3, a drop of 15 percent.

A big concern are marketing costs. The first 3 quarters of this year saw Groupon spending $613 million trying to attract new subscribers, compared to under $90 million in the first 3 quarters of 2010. With these concerns in mind, Groupon has reduced its marketing budget, with chief executive officer Andrew Mason pledging to further cut back expenses in the future.

Another issue that Groupon seeks to clarify is the notion of “selling stockholders”. The company has noted that its shareholders will not be offering any shares in the IPO. Recently, the founders of the company and their investors have sold a large amount of stocks, raising $950 million. $810 million of this amount went to current shareholders.

Groupon will trade on NASDAQ, using the ticker GRPN. The main Underwriters are Morgan Stanley, Goldman Sachs and Credit Suisse.

Related Links:

Dealbook Article

Groupon’s S-1 Filing at SEC

Techcrunch Article

BusinessWeek Article on Groupon IPO

Tudou Drops After IPO

Shanghai-based Tudou Holdings, China’s second largest video website, saw its value plunge by as much as 19% on its first day of US trading.

Pricing its shares at $29 each, Tudou sold 6 million American Deposit Receipts (ADRs), raising $174 million in the offering, but it opened down at $25.11. By 1pm New York time, Tudou, nicknamed the ‘Chinese YouTube’, was down 8.3%. Tudou sold its stock at a 58% discount to rival video website, Youku. In contrast, Youko had a hugely successful offering when it went public in December, with the best first-day performance for a US listed IPO since 2005. Unfortunately, Tudou’s offering has come at a time when US investors are wary of US-listed Chinese stocks, due to recent accounting scandals and corporate governance issues.

Since it was founded in 2005, Tudou has grown dramatically. Tudou hosts more than 40 million videos, with over 200 million visitors per month. The site serves 40% of China’s monthly online population. As well as movies, tv shows and self-produced content, Todou offers user-generated videos, much like YouTube. The majority of revenue comes from online advertising, but in addition Tudou sells mobile access to China Unicom and China Mobile customers. Although its revenue has increased sharply in the past few years, its losses have also increased. In the three months ending March 31st, net revenue rose 167% to $12.1 million, but the net losses were almost $52 million.

The government-sponsored China Internet Information Center released data claiming that China had 485 million internet users at the end of June. This is quite a contrast to the US, which had 215 million users as of the end of July.

Both Tudou and Youku went public to raise funds for technology changes, expansion, and securing video rights through licensing deals. Talking to Bloomberg, Tudou CEO Gary Wang said: “We have plenty of challenges ahead to make sure we can bring in enough content to meet users’ needs, that the platform is growing rapidly and advertising numbers are also growing rapidly. We want to use the proceeds to grow the company organically.”

In addition to negotiating with US media companies and studios, Tudou is looking for content from providers in China, Japan and Korea amongst others. The Chinese audience craves global variety, and Tudou aims to provide them with just that.

Read more:

Bloomberg Article

Washington Post Article

Chicago Tribune Article

Wikipedia Entry on Tudou

Wikipedia Entry on American Depositary Receipts (ADRs)