Groupon IPO Could Value Company at $25bn

Bloomberg is reporting Groupon’s valuation could now be pegged at $25-billion, according to confidential sources that spoke to the publication who were familiar with discussions taking place between Groupon and investment banks as the company looks for an initial pubic offering (IPO).

Groupon generates revenue by splitting revenue with merchants that offer deep discount limited-time deals exclusively for Groupon users. Groupon currently has about 75-million users, and the company continues to expand into new markets.

 Groupon employees 5,000 people across all of its operations, with a significant portion of those people working as part of the company’s sales force team.

In December 2010, Google made an unsolicited bid to acquire Groupon for $6-billion, an offer that was ultimately turned down by the company.

Since the failed Google acquisition, the company now operates in more than 500 cities, up from 300 in December 2010.

The only two-year-old web start-up has grown exponentially since its inception.

As Groupon is currently a privately held company, it does not publically disclose earnings, but a report by the WSJ said revenues were about $760-million for fiscal 2010.

On March 16, during a press dinner in NYC, Ben Horowitz of the venture capital firm Andreessen Horowitz that participated in Groupon financing rounds said total revenues are now “multiple billions” of dollars. He did not elaborate when pressed by members of the press.

In April 2010, the company was valued at $1.3-billion when investments were made by venture capitalists, including Digital Sky Technologies, the same venture capital firm that owns a part of Facebook.

In the most recent round of financing completed about two months ago, Groupon raised a staggering $950-million in funding, valuing the company at $4.75-billion.

To date, Google is the biggest web company to go public with a $23-billion valuation at its 2004 IPO.

Despite the exponential growth of Groupon, there are concerns whether Groupon could sustain such growth, particularly in emerging markets.

After a retailer uses Groupon, it would experience an influx of consumers, but the question is, will these consumers return for future purchases?

The merchant would need to evaluate the value of participating in discounted offers, especially in the longer term, which rises questions just how much Groupon could actually grow.

Additionally, many merchants, particularly higher-end businesses, appear to be hesitant to participate in these deep discount schemes for fear of loosing customers as people would wait for another deal.

A number of Groupon competitors have emerged given the high economic profits in the short-term, and some of them, are also well capitalized, like SocialLiving, which is reportedly close to securing $400-million in financing.