Since the flop of Facebook Inc. (FB:US)’s initial public offering last year, only two U.S. consumer Web companies have gone public: real estate site Trulia Inc. and travel search engine Kayak Software Corp.
Twitter Inc. remains on the sidelines with an estimated $9.8 billion valuation, more than 95 percent of companies in the Nasdaq Composite Index. (CCMP) Other startups, such as cloud-storage company Dropbox Inc., mobile-payment platform Square Inc. and room-sharing service Airbnb Inc., sport valuations of more than $1 billion. It may be up to an online coupon site from Austin, Texas, to get those companies off the bench.
RetailMeNot Inc. (SALE:US), which provides digital discounts at more than 50,000 stores, surged 32 percent to $27.70 in its debut on the Nasdaq today, for a market capitalization of about $1.4 billion. The company and shareholders sold 9.1 million shares for $21 each in an IPO, according to a statement yesterday, after offering them for $20 to $22 apiece.
It’s not Groupon Inc., which has missed earnings estimates and recently ousted Chief Executive Officer Andrew Mason. RetailMeNot has a gross margin of 94 percent, wider than any company in the Standard & Poor’s 500 Index and more than 20 percentage points better than Groupon’s -- or Facebook’s. Because consumers find the coupons themselves through Web searches or when they make a purchase, the company’s product has almost no material costs.
“We’re not saying we’re going to be profitable in two years or three years -- we’re nicely profitable today,” RetailMeNot Chief Executive Officer Cotter Cunningham said in his road show video presentation to money managers.
Cunningham, formerly chief operating officer at Bankrate Inc., started the company in 2009. RetailMeNot offers promotions such as 20 percent off purchases at Macy’s Inc. (M:US), $30 off a Kindle Fire from Amazon.com Inc. and a $2 smoothie from Jamba Juice. In the first quarter, RetailMeNot’s sales (SALE:US) jumped 37 percent to $40.6 million.
Since Facebook, “investors are aggressively looking for growth, but care that there’s a larger story and path to profitability,” said Lise Buyer, principal at Class V Group LLC in Portola Valley, California, which advises companies headed for the public markets. “The lesson from Facebook is that hype and popularity do not a successful IPO make.”
Twitter and other prominent startups have opted to continue raising private money at IPO-type valuations. That lets them keep their finances private, avoid regulation and test new products without worrying about quarterly results. In a recent survey of 91 U.S. startups conducted by accounting firm KPMG LLP, 45 percent of respondents said they prefer to remain private, more than 30 percent want to be acquired and only 19 percent want to go public.
“An IPO is not a goal -- I think it’s an important step along the way,” Phil Libin, CEO of note-taking application company Evernote Corp., told Charlie Rose last month. “You can really do a lot of damage if you get that step wrong.”
Along with Evernote, online bulletin board Pinterest Inc., e-tailer Fab Inc. and music-streaming service Spotify Ltd. have all raised money at $1 billion-plus valuations in the past year. The other companies declined to comment on possible plans for an IPO.
As attractive as it is to entrepreneurs to raise private money at public-market prices, startup investors and venture capital funds want to cash out in an initial offering or outright acquisition.
“You start relying on something north of $3 to $4 billion, in some cases higher, to justify what you’ve done,” said Craig Hanson, a general partner at venture firm Next World Capital. “There aren’t going to be very many companies that hit that.”
RetailMeNot’s last funding round in late 2011 implied a valuation of about $800 million. Twenty months later, the firms that led that round, JPMorgan Chase & Co. and Institutional Venture Partners, are counting on a strong IPO to make a significant profit. Brian Hoyt, a spokesman for RetailMeNot, declined to comment, citing the pre-IPO quiet period.
A successful offering could help erase the sour taste left by Facebook. Next World’s Hanson said a few more consumer IPOs coupled with shrinking U.S. regulatory requirements will encourage more companies to tap public markets instead of relying on private capital. The Jumpstart Our Business Startups Act, signed into law by President Barack Obama last year, reduces the amount of disclosure required for emerging companies and lets them keep their filing confidential until three weeks before the roadshow.
“The burden of going public is a lot less than it used to be,” said Hanson. “That will have an appreciable effect over time.”
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