
Groupon Readies for An I.P.O. - ssclafani
http://dealbook.nytimes.com/2011/01/13/groupon-readies-for-an-i-p-o/
======
ghshephard
I've come to the conclusion that Groupon is going to win.

The coupon business is an initial (albeit profitable) component of their
long(er) term strategy. They will use a massive part of their recents rounds
of financing + the organic revenue they get from their day-day business to
create an increasingly larger direct sales force, that lets them step in and
become the Online version of the Yellow Pages.

For whatever reason, Google never really became the "Trusted Local Directory"
of businesses - Don't get me wrong, I use them 10-15 times a week to look up
businesses - but lots of local companies have figured out how to game Google's
local Business lookup - and, when I'm looking for a reliable Locksmith,
Plumber, Flower Delivery, Etc... Google doesn't deliver like the yellow pages
always did.

Part of that is inherent to the mechanism - Google does algorithmic analysis,
which isn't completely effective when trying to determine whether you are
dealing with a up-and-up storefront.

But most of that is feet on the ground.

The yellow pages had a Massive Direct Salesforce + a filter - Typically only
"real" companies would bother to invest in a Yellow Pages Ad, because they
were the only ones who could justify the cost. A company in the Yellow pages
was a real organization, that had been visited by a local salesperson. You
couldn't SEO a placement into the Yellow Pages.

Groupon is going to become the new Yellow Pages. For a while, I thought it was
going to be Yelp, but (A) their business model, publishing criticisms of
businesses, was always at odds with their customers interests (and they took a
lot of heat when people got sensitive to that conflict of interest) and (B)
they didn't raise enough money, or hire enough people, quickly enough.

Groupon is aligned with the businesses (their customers), and is growing
quickly enough to win the market. They will have a direct sales force that
will reach into every major metropolitan area - and, within six months, there
will be a Groupon index of local businesses.

That's why Groupon is worth $15B.

~~~
jarek
If I was looking for a reliable locksmith/plumber/flower delivery the first
resource I would consult would be local friends/acquaintances I trust. Picking
a random company from 50 yellow pages listings is crazy, and so -- currently
-- is depending on Google to pick out the right one. Social seems to
intuitively be the obvious direction to go.

(I don't know how social Groupon is. I stayed away so far because I have no
interest in deals of the day.)

~~~
khafra
Groupon's sociability level anecdote: I have ~100 facebook friends; one of
them posts a groupon deal she considers interesting once every few weeks.

Reliable local service anecdote: I'm looking to rent a house, and after
finding the first page of Google results for "rent house" to be spam, have
restricted my search to Craigslist.

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iamelgringo
It's going to be a very interesting couple of years in the startup world,
simply because of the potential IPO's in the pipeline: Groupon, Facebook,
LinkedIn, Yelp, Twitter, Zynga...

As those companies have huge exits, there's going to be a lot of young, early
employees that are able to cash out and become angels or work on their next
huge startup.

Some people say it's a bubble. I'm thinking/hoping it's more on the lines of a
Renaissance.

~~~
sabat
_Some people say it's a bubble. I'm thinking/hoping it's more on the lines of
a Renaissance._

At least some of those companies have actually turned a profit and stand a
chance of maintaining one. I have my doubts about Groupon's and Zynga's
medium-to-long-term chances, but I've been wrong before.

 _there's going to be a lot of young, early employees that are able to cash
out_

Early employees will probably not be able to cash out for at least six months;
that's the standard waiting period after an IPO. Ironically, people who get
friends-and-family deals pre-IPO are the most likely to get rich quickly (if
they sell on an early uptick).

~~~
redthrowaway
I have every confidence that Zynga will succeed. Don't get me wrong, I hate
them with a passion, but they are incredibly smart and have a very successful
model. Their games are built to be addictive, not fun. They've taken
everything that made people lose months of their lives to WoW and condensed
it, according to recognized psychological principles. They're cynical, but
they'll manage to succeed regardless of what gets thrown their way.

~~~
dominostars
The problem Zynga has right now is that they're building a reputation as a
'not fun place to work' for engineers. This probably won't kill them, since
their power comes from psychology more than technology, but it might hurt
them.

~~~
redthrowaway
To be honest, they don't really need engineers. All of their products could be
easily outsourced.

~~~
allenp
I disagree, their datawarehousing efforts are enormous and key to their
success. I seriously doubt they would trust another company with this.

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vaksel
to me that sounds like a major case of a company cashing out before the bubble
bursts. They don't need the money, and they definitely don't need the
regulatory oversight that the IPO brings. They just raised close to a billion
for a supposedly massively profitable business. They have plenty of cash on
hand.

It's a massive ponzi scheme where the businesses have been convinced to take
massive losses with the hopes of making them up later. Very few actually get
the results they are promised by the sales people.

On the buyer side...it's just lame...it's the same type of deals over and over
again, and I wouldn't be surprised if their customers only last a few months
before they internally label Groupon as spam.

don't get me wrong, Groupon is a massively profitable business, but I think
they want to cash out while everyone thinks they are worth 20-30 times more
than they actually are.

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anigbrowl
Updated story suggests $15-20 billion. I must admit to being astonished by
both the valuation and th size of the company (3100 staff). I thought they
were foolish to spurn Google, but if these rumors prove accurate that'd make
me the foolish one.

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clofresh
Why would you prepare for an IPO so quickly after closing a $950 million
funding round? Is their burn rate that high?

~~~
swombat
They didn't raise $950m to extend their runway. No one raises this sort of
money for that. They're already highly profitable. They raised that money to
hire a metric ton of salespeople to expand the business even faster.

~~~
jnovek
Not to mention buy out every Groupon clone in a market that they're not
already in.

~~~
swombat
Surely that would fall foul of antitrust laws...

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dstein
The problem is Silicon Valley venture capitalism might be in a bubble right
now, but the broader stock market is not (yet). I'd be surprised if the open
market doesn't see straight through these valuations.

~~~
knowsnothing613
it depends on how liquid the shares are. If 80% are controlled by insiders,and
institutions loyal to insider, they can run up the stock, despite the
incongruity with fundamentals.

case study: Open Table

<http://www.google.ca/finance?q=open+table>

It has a P/E of 157!!!!! And it's still going strong. Likely because it's
getting pumped by thin trading.

It's the classic pump n dump. Run up the stock, and try to unload it to dumb
money like mutual funds, and pension funds aka (your money).

Groupon's P/E can run just as high. It depends on how high they have to push
it to entice dumb money, which is likely why they are pushing out a pre-IPO PR
blitz to frame the story beforehand.

This was all done in Web 1.0. Same bag of tricks. Let's see if the average
American has learned anything.

~~~
zackattack
You seem confident. Are you taking a short position on Open Table? I doubt it.
Put your money where your mouth is.

~~~
knowsnothing613
I'm not stupid.

If the shares are illiquid, I'll wait for the dumb money, and short like the
big players, if/when P/E gets above 200.

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littleidea
You can always tell there is a bubble when people are trying to convince
themselves and each other that their isn't.

I predict Groupon will be a 'venture math' win and an epic failure as a
sustainable business. (Especially once that anyone who would give a damn has
cash)

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code_duck
So when is facebook going to start with 'Facebook Local Deals' or something?

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chopsueyar
Does Groupon own any patents?

