Groupon's $30B IPO- is it unicorn money?

Given the company's losses, is such a sky-high valuation realistic?

After word got out that Groupon had finally taken the public leap yesterday by filing for an IPO, all of our nagging curiosities about Groupon’s financials were finally satisfied. Yes, Groupon raked in more than $700 million in 2010. Yes, it’s well on its way to triple that this year. No, it’s still not profitable. But all of that leaves one big, yet-to-be answered question: What will Groupon’s IPO valuation be? $15 billion? $20 billion? $25 billion? Getting warmer. Try $30 billion. Yes, Groupon’s valuation may actually surpass Google’s 2004 IPO valuation of $27 billion, according to the New York Times.

Groupon’s rumored valuation has been steadily climbing over the last several months since it was first reported that Groupon was considering an IPO in January. Following its first exploratory bake-off meetings, Groupon was said to be considering an IPO for a $15 billion valuation—more than double the $6 billion buyout offer that Google made only one month earlier.

Over the months, that number ballooned to $20 billion, and finally $25 billion. To put this into perspective, consider Groupon’s $135 million Series C round led by DST, which gave the company a $1 billion valuation. That was April 2010—just 14 months ago. If the rumors are true, then Groupon’s valuation has increased 30x in one year. (Make way for the “tech bubble” town crier…)

Groupon’s explosive revenue growth (even if it hasn’t yet turned a profit) certainly seems to warrant an equally explosive valuation, but the company has also been hemmorhaging money since 2008--$540.2 million to be exact. 

“The valuation is based in large part on Groupon's ‘hockey stick’ revenue and subscriber growth,” said Greg Sterling, an analyst at Opus Research. “Some of the naysayers are out in force, pointing to the losses and increasing costs that Groupon revealed yesterday. The model is clearly not as solid or ‘bankable’ as Google, but Groupon's growth is impressive. The company faces the challenge of ‘fixing’ the core metrics and diversifying its business into new areas -- which it's doing -- while staying ahead of a range of formidable competitors, which now include Google, Facebook and Amazon. Still Groupon is the ‘brand’ in the space; so I'm cautiously bullish on the company.”

But fellow Opus Research analyst, Dan Miller, disagrees. 

"Aside from staggering losses (which I understand can be mitigated because it is a high variable cost business and, according to management, spending on marketing, sales and subscriber acquisition can be cut back if profit becomes an issue), my problem is that Groupon is not really a "social medium," like LinkedIn, Facebook or Twitter. It's more like an old guard, email-based direct marketing company, but it has added some of the worst aspects of the coupon community." 

Miller added: "Groupon is an example of a company that would perform better as part of a larger, true social medium. The idea of Groupon being purchased by Google was a much more interesting proposition."

So who stands to earn mega-billions from the IPO? Eric Lefkofsky, co-founder of Lightbank and one of the first investors in Groupon, owns 61.4 million shares, or 21.6% of Class A shares, and 41.7% of Class B shares, making him the largest shareholder. Fellow Lightbank co-founder and early Groupon investor Brad Keywell owns 6.9% of the company’s Class A shares and 16.7% of its Class B stock. Accel, which invested in Groupon in November 2009, owns 5.6% of the company’s stock, while Andrew Mason has a 7.7% stake in the company’s stock.

T. Rowe Price Group Inc., Andreessen Horowitz, Greylock Partners, DST, and Kleiner Perkins Caufield & Byers each owns 5% of Groupon’s shares.