Does Groupon is worth 15 billion in an 2011 Initial public Offering (IPO)?

There is recent rumour on the Internet that Groupon will try an Initial Public Offering (IPO), which will value the firm around US$ 15 billion in the Spring of 2011.   It is true that Groupon is the fastest Internet firm to reach 1 billion in revenue in 2 years.  Gross and net margin are very high.  Groupon and number 2 LivingSocial have around 92% of web traffic in the group-buying discount market.   Groupon rejected a $6 billion offer from Google last year.

However, there are more than 500 imitators with the same business model targeting national, regional and international markets.  Most of them have even the same web site design as Groupon.  It is very easy to copy the recipe of success of Groupon.  The leader has already the first mover advantages: it became on important players in many cities to create a critical mass.  They have hundreds of salesperson to get new daily discounted group-buying deals.  They enjoy also temporary winning conditions.  For instance, when web advertising started to be implemented with high speed Internet, banner ads and video ads were very lucrative. Now with the proliferation of Internet advertising, these online ads are not so lucrative per click.  When it is new, it is more appealing  for a large segment of consumers.  Another example, is the success of virtual goods sold in online video game.  Who wants to buy a virtual good? I don't understand why am human being would do this, but 6% of the customers of online game did that for $640 million in 2010.  I'm not sure this is a sustainable trend, but it is new and appealing for a segment of the population, so far...

Groupon can create value by personnalizing its offering by getting to know better their customers and using socila networks with mobile networks.  Once you pre-authorize certain categories of ads you are more willing to receive such ads and with location-based services.

Facebook, Google and others can easily get a larger piece of the group-buying daily deals pie.

Does Groupon is worth 15 billion in an 2011 Initial public Offering (IPO)? There is already an Internet bubble and if the firm doesn't diversify its product offering and the way to do it, it may face severe competition.

Louis Rhéaume
Infocom Intelligence
louis@infocomintelligence.com