Groupon - IPO and Valuation

21 March 2011 03:09 PM CDT

I’m hesitant to back an investment in Groupon. Sure, it’s a great company with a great product. I’ve even used the product before. Not much, mind you. I’ve been a Groupon subscriber and customer for about a year but have only made purchases a grand total of three times. That’s right, one, two, three. That’s it. Believe me, I love getting a deal. However, Groupon is incredibly hit or miss. Maybe I’ll want the deals of the day, maybe I won’t. And, so far, it looks like they miss more often than they hit. Also, Groupon is still so new it’s unclear whether they ultimately benefit retailers. There was a recent article discussing faculty research at the Harvard Business School focusing on whether Groupon is good or bad for retailers. Many retailers actually lose money through the issuance of a Groupon. Furthermore, the group buying and deals space is quickly becoming overly crowded (you’ve got Living Social, Dealster, BuyWithMe, SocialBuy, Sharing Spree, and tons of others). Groupon has a great lead, but it’s still very early to declare a winner.

About a week ago investment bankers advised Groupon that they may IPO with a valuation close to $25 billion. That’s bigger than Google at their IPO. Google has an unbelievable history of being innovative and racing to meet the needs of their customers. So too does Apple. And Facebook. As soon as Groupon has shown that they are nimble and innovative (beyond the product they currently have), I may be able to support a sky-high valuation like $25 billion. Until then, I hesitate to make an investment recommendation.

I’d rather see them succeed than fail. A successful, innovative Groupon will mean more deals for me. Hopefully, more relevant deals. Good luck, Groupon!