Groupon IPO talk heats up

'Deal of the day' website reportedly eyeing valuation up to $25 billion

It seems like only yesterday that online search giant Google was trying to buy web discount site Groupon for the paltry, insulting sum of $6 billion. (Six billion! Did Google think it was getting in on some deal of the day?) But that was more than three months ago and, having rejected Google's laughable offer, Groupon has so moved on. (Also see: Groupon reportedly planning spring IPO) Just a few weeks after January rumors that Groupon might go public this spring, the company is reported to be in talks with banks about an IPO that could value it at up to $25 billion. From Bloomberg Businessweek: Groupon, the top provider of online daily discounts, has pushed into hundreds of new cities and doubled its subscriber base over the past three months. That’s helped its valuation soar since December, when it turned down a bid from Google Inc. (GOOG) for $6 billion. The company now has 70 million users and reaches more than 500 markets, up from 300 when Google made its offer. Groupon was valued at about $1.3 billion last April, when it raised $135 million from investors, including Digital Sky Technologies. It contemplated more funding at a $3 billion valuation in November, shortly before Google’s offer. An investment of $950 million, completed in January, pegged Groupon’s worth at $4.75 billion. Now they're talking about a valuation of at least $15 billion and going up to $25 billion, though it doesn't sound like a spring public offering still is on the table. According to Bloomberg's sources, the IPO "may happen this year." But with giants such as Facebook and Google eyeing the online discount market, and with relatively low barriers to entry, can Groupon's future revenues and profits justify those lofty values? It'll be challenging, according to one Bloomberg source: Closely held consumer Internet companies like Groupon are “being valued as though they are going to be the next Google or EBay or Amazon,” said Claire Enders, the founder of London media-consulting company Enders Analysis. “But their business models may reach their limits a lot more quickly, or not work in as many markets.” Something tells me a lot of investors these days don't want to hear that kind of realistic negative talk. Not when there's a bubble to expand.

Chris Nerney writes about the business side of technology market strategies and trends, legal issues, leadership changes, mergers, venture capital, IPOs and technology stocks. Follow him on Twitter @ChrisNerney.

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