Groupon IPO valued at $13bn, group buying here to stay?

Initially priced at $16 to $18 a share, the decision to raise the price and increase the size of the stock sale by five million shares is based on high investor demand. With 35 million shares to float, representing five percent of the company, Groupon is set to raise $700 million with the IPO.

Setting the irony of large groups of buyers actually driving Groupon’s price up aside, at this valuation it’s worth more than Xerox or Whole Foods, according to WSJ.

Neverthelesss, analysts are skeptical about the company’s long-term profitability. It seems Groupon’s swift growth was based on an aggressive marketing strategy spending $613 million on marketing in the first nine months of the year and driving losses of around $103 million in the second quarter.

When Groupon slashed marketing spend, subscriber growth slowed to a crawl and the company confessed that while it had 143 million subscribers, only 30 million were still buying in the third quarter. The company has also not enjoyed success in China and remains only modestly profitable within the US.

However, investor confidence is buoyed by the likes of LinkedIn’s IPO earlier this year which saw the company’s share price double valuing the company at $8.7 billion at the end of its first day of trading.

But whether Groupon succeeds as a company or not, group buying as a sales and marketing strategy is here to stay, said a report by Business Insider. The article pointed out that as mobile and location-based marketing converges and grows in popularity will  increase its popularity as users will be able to buy coupons that they can spend immediately and nearby. The system will allow businesses to gauge offers based on an immediate situation (number of rooms available at a hotel that night), rather than five months down the road.

Hopefully, the current frantic and seemingly random slew of offers, from dinners to weddings to semen testing, will also start to die down and relevant, quality deals that are “hyper local” will come to the fore and sites that specialise will push a more mature approach to the group deal system.

The debate surrounding the surivival of group deals sites is therefore less about the effectiveness of the sales and marketing format and more about whether it can generate sufficient demand to support firms the size of Groupon. Principal analyst at Forrester research, Sucharita Malpuru is skeptical, writing in an open letter that the market opportunity just wasn't that large. "It relies on discounting products which attracts the wrong customers, merchants are hard to sell, good merchants are more expensive to sell to”.