Groupon trims back IPO plans, shows significant progress

Groupon, the wonder story that has gradually gained a lot of doubters, is moving forward with a scaled-back initial public offering, and is showing some better progress toward profitability. The company said Friday in a revised S-1 filing that it will sell 30 million shares at $16 to $18 a share, which would raise up to $540 million and value the company at $10.1 to $11.4 billion.

The company will only offer a small five percent of its common stock to investors. For now, it looks like Groupon is intent on going public raising a lot less than its original goal of $750 million, and it’s at much smaller valuation than the $25 to $30 billion bandied about earlier this year. But the company is showing that it’s making progress with a business model that many have questioned.

According to its third quarter data, Groupon, which will list on the Nasdaq, has managed to boost revenue by 426 percent year-over-year to $430.1 million from $81.8 million, and revenue is up 9.6 percent from the second quarter, a more modest growth curve compared to previous quarters. The company also scaled back its net loss to $10.6 million from $49 million compared to the same quarter last year. The company’s marketing costs, which have been a cause for concern, was trimmed down to $181 million, compared to $432 million for the first six months of the year. But Groupon has managed to keep growing, increasing its subscribers to 143 million up from 21 million a year ago and 116 million in the second quarter. Groupon now has $244 million cash on hand, an 8 percent increase versus the second quarter, and up 255 percent over last year.

The company still faces a lot of questions about how it can move toward profitability. Andrew Mason, the company’s CEO, asserted in a controversial note to employees that got the attention of the SEC that it would be able to scale back its marketing costs over time. But the figure has still raised concerns with analysts who wonder if Groupon can keep subscribers while slashing marketing. The SEC has also taken issue with some of the metrics Groupon has used, which Groupon has since dropped.

Groupon critics will still find reason to worry about the business. BuyWithMe, another group-buying service, just laid off more than half its staff, and other competitors are dropping out, which may be good news for Groupon but also leads to questions about the viability of the market overall. But with the latest third-quarter numbers, Groupon has a better story to tell as it takes its road show to investors. Will it be enough to convince them that Groupon is legit? We’ll have to see when the company finally goes public.