Groupon Gets its IPO On; Is the Web Bubble Going to Burst?

[ 0 ] June 3, 2011 |

Wildly popular coupon e-tailer hopes to raise $750 million in its IPO; Could we be headed toward a social media bubble burst? Maria Bartiromo on the last bust

Groupon filed for an initial public offering Thursday, hoping to raise $750 million on its way toward raising what  some speculate could be upward of $1 billion in an IPO that could place it’s value of anywhere from $15 billion to $20 billion.

Groupon, the Chicago-based provider of daily online coupons that has been a fast hit with consumers and marketers nationwide, plans to list its shares under the symbol GRPN. Groupon said in its filing that it saw $644.7 million in revenue in the quarter ended in March, compared to $44.2 million in the same period a year earlier; but the company reported a net loss of $113.9 million, from net income of $8.6 million in the year-earlier period.

Maria Bartiromo, host of CNBC’s “Closing Bell” and anchor and managing editor of the nationally syndicated “Wall Street Journal Report with Maria Bartiromo,” talked to genConnect at last year’s Aspen Ideas Festival and reminded us what happened during the last dotcom boom and bust. She said:

“We just went through this period where we threw out all fundamentals – it didn’t matter if the company had very little revenue, no earnings. If it had a ‘dot-com’ on the end of its name, people thought it was really valuable. Then the Internet bust. Where valuations plummeted. You had people who thought investing in the stock market and getting rich overnight was actually a reality. Come back down to Earth and recognize that fundamentals really do in fact matter.”

The Groupon IPO filing comes soon after another big Web hit went public. Business social media site LinkedIn went public last month, thinking it could take in as much as $274 million in its initial public offering; it valued itself at around $3 billion. Whether other big Web hits like Facebook or Twitter will soon try to go public remains to be seen. Meanwhile, online music service Pandora raised its IPO up to $141.6 million on Thursday – 40 percent more than estimates.

Some, like Roger Martin, dean of the Rotman School of Management at the University of Toronto and author, wonder if we are headed toward something similar to the bubble that led to the dotcom bust of 2001. Martin notes that “LinkedIn could grow net income 27 times over three years and still massively disappoint the market. To meet current expectations, it would have to generate 82 times profit growth in the same period.”

In his letter to IPO investors, Groupon CEO Andrew D. Mason wrote:

“Expect us to make ambitious bets on our future that distract us from our current business. Some bets we’ll get right, and others we’ll get wrong, but we think it’s the only way to continuously build disruptive products. We are unusual and we like it that way. We want the time people spend with Groupon to be memorable. Life is too short to be a boring company. Whether it’s with a deal for something unusual, such as fire dancing classes, or a marketing campaign such as Grouspawn (1), we seek to create experiences for our customers that make today different enough from yesterday to justify getting out of bed.”

What do you think? Is the value we are placing on these Web companies real or inflated? Are you worried we’re headed toward another dotcom bust? Or should we ride the wave?

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