Groupon Puts IPO On Ice As SEC Questions Remain

7 Sep, 2011

Groupon has put its IPO on hold for at least a few weeks, hoping to ride out global market turmoil while dealing with regulators' questions surrounding its highly anticipated public float, two sources with knowledge of the deal said.

Groupon, which had intended to launch into the final phase of its initial public offering in mid- to late September, joins Zynga and other would-be market debutantes that have called off flotations after a dismal outlook for developed economies hammered stock markets.

Since Groupon filed for a $750 million IPO in June, some on Wall Street have also questioned Groupon's financial disclosures -- including its use of a metric that excludes marketing and other expenses from profit calculations -- while others fear the company's growth is slowing in North America.

To hit an unofficial deadline to debut this month, the company would have had to launch a roadshow to attract potential investors this week or next.

The Wall Street Journal reported earlier on Tuesday that Groupon had scheduled a roadshow for next week but has called that off now.

The company is not canceling its IPO, but is reassessing the timing of an offering on a week-by-week basis, the sources said on condition of anonymity because the IPO process is not public.

Groupon Chief Executive Andrew Mason also drew fire after an August memo to employees lashing out at the daily deal site's critics was leaked widely to media. In the internal memo, Mason also talked about August revenue growth and reaffirmed his confidence in the business.

The company has received questions from the SEC about the memo, the Wall Street Journal cited unidentified sources as saying. Regulations limit what companies can say ahead of a planned IPO.

A Groupon spokesman declined to comment.

Questions Swirl

Groupon is among a clutch of Internet companies speeding toward an IPO this year or next, including Zynga and Facebook.

Apart from questions on disclosure, investors worry also about the underlying profitability of Groupon's business.

Its IPO filing in June revealed a company growing quickly, but losing a lot of money. Marketing spending on new subscribers has been a big source of those losses and some analysts worry that Groupon may have to keep spending heavily to attract and retain customers.

Mason has argued that subscriber-acquisition costs would dwindle over time because once a customer signs on, he or she can be maintained through simple email alerts.

The largest daily deal company wants to slash that cost to zero in less than three years, two people familiar with the company said last week.

The daily deals industry that Groupon helped create has also been experiencing growing pains recently.

Facebook ended its Deals business after only four months, while Yelp's Chief Executive said this week that some types of popular local businesses think daily deals are "uneconomic," raising questions about the sustainability of the model.