Groupon's valuation cut in half?

Reports peg Groupon's valuation at $12B instead of $25B

Following up on reports that Groupon intends to kick off its investor road show early next week in preparation for its IPO, it’s now looking like that very IPO may be valued at less than half the $25-$30 billion the company was originally expected to fetch.  Groupon’s IPO may drop the company’s valuation to $12 billion, according to a report from DealBook.

The precipitous drop in valuation likely stems from a number of causes, not least of which is the frosty IPO atmosphere at the moment.  In September, Kayak confirmed that it plans to delay its IPO until market conditions improve.  Similarly, in August, Zynga was rumored to be postponing its IPO.

While Groupon was believed to be readying its IPO for some time immediately after Labor Day, reports later emerged that it was postponing its offering until later on in the fall, due to the erratic market fluctuations.  Now it looks like the IPO may come as early as next month, following reports that Groupon is gearing up to launch its investor road show on Monday or Tuesday of next week.

Of course, it doesn’t help that Groupon has amended its prospectus four times in as many months since filing to go public—primarily to adjust its accounting metrics and financial data.  The end result: Groupon’s initially stated revenue has been essentially chopped in half.  While the company originally reported $760 million in revenue for 2010, it was later forced to revise that number—which previously included merchant cut—and admit that true revenue was actually $312.9 million for the year.  Similarly, Groupon had to revise its original claim to have earned $1.5 million in revenue in the first six months of 2011 and admit that it actually brought in $688 million.

The weird thing is that that’s still a pretty solid chunk of money, putting Groupon on track to make well over $1 billion in only its third year of business.  By comparison, it took Google, Amazon, and Facebook five years to reach the big $1 billion mark.  Unfortunately, because Groupon inflated its revenue to begin with, the pare-downs have cast its finances in a somewhat negative light, despite the fact that it’s still doing remarkably well.

One area for concern among investors, however, remains Groupon’s marketing spend.  In 2010, Groupon made $312.9 million in revenue, but spent $284.3 million on marketing.  All told, the company suffered a staggering net loss of $389.6 million last year.  In the first six months of 2011, Groupon spent $432 million on marketing while posting revenue of $688 million.

Earlier this month, Groupon amended its prospectus (again) to assure potential investors that such high levels of spending won’t continue forever, and it will eventually reduce the amount of money it spends on subscriber acquisition.

Image source: thedailybeast.com