By the end of this week, shares of digital coupon leader RetailMeNot Inc. (NASDAQ:SALE) are expected to price. The company (prospectus) has set a pricing range of $21 to $23 per share for the 9.09 million shares going public. I believe the shares could get priced above that range and investors could see this company shoot up on the first day of trading.
RetailMeNot is selling 4.55 million shares of its company while current shareholders will also sell 4.55 million shares. After the IPO, public investors will own less than 10% of the company, while the company's board of directors and large shareholders will own 76%. Interestingly enough, Google (NASDAQ:GOOG) through its Google Ventures arm owns over 5% of the company pre-IPO.
RetailMeNot is the largest digital coupon website in both the United States and United Kingdom. The company has also expanded into other parts of Europe through a series of acquisitions. Here is a look at the company's assets:
· Retailmenot.com - Largest digital coupon website in the United States, also strong in Canada, made up over 80% of the company's 2012 revenue
· Vouchercodes.co.uk - Largest digital coupon website in the United Kingdom
· Bons-de-reduction.com - digital coupon website in France, was acquired in 2012
· Poulpeo - France website, acquired in 2012
· Deals.com - Germany deals website
· Actiepagina.nl - The company's latest acquisition from 2013, coupon website based in the Netherlands
In 2012, RetailMeNot saw over 450 million visits to its arsenal of websites. The company represented 60,000 retailers and brands around the world.
RetailMeNot offers the following for consumers who use their sites:
· Save money with a broad selection of digital coupons
· Depth of digital coupon selection from leading retailers within each category
· Reliability and curation of digital coupon content
· Relevance and personalization
· Anytime, anywhere availability and consistency of digital coupons online and in-store
The company offers the following for its retail customers:
· Access to a large consumer audience
· Multichannel engagement with consumers
· Trusted partnerships and strategic dialogues with retailers
· Quantifiable, pay-for-performance model that helps retailers measure marketing ROI (return on investment)
The strengths identified by RetailMeNot in its prospectus are:
· Global leader with scale and strong brands
· Trusted partner to leading retailers
· Network effects
· Strong technology platform and proprietary data
· Large community of actively engaged users
· Attractive business model with compelling value proposition
Going forward, RetailMeNot will utilize these growth strategies:
· Increase traffic and monetization
· Grow depth of paid relationships with retailers
· Enhance mobile solutions and in-store enablement
· Invest in technology and innovation
· Expand internationally
· Pursue strategic acquisitions
Revenue Per Visitor
RetailMeNot has seen its revenue increase substantially over the last three years. In fact, from 2010 to 2012, the company had a compound annual return of 192.9%.
In the prospectus, RetailMeNot gives an early look at second quarter earnings. Revenue is estimated to come in at $42.0 to $45.0 million. This would represent a year-over-year increase of 39.5 to 41.2%. Results were helped by recent acquisitions and increased monetization. Net income will be between $4.3 and $4.6 million. In the second quarter, 121.2 million people visited the company's websites, an increase of 18.7%.
I think the important revenue consideration going forward is international growth. In the first quarter, 21.7% of revenue came from international markets. That is a large increase from 14.4% in the first quarter of 2012, and a nice increase from the end of 2012 (17.1%). The acquisition of actiepagina.nl will be a key to the second half of the year. The company recently expanded its sales presence in the Netherlands and will look to monetize its new asset quickly.
Only a couple of the company's sites have mobile applications. RetailMeNot, for example, has an app that allows customers to see discounts for stores they are near to at that moment. Several of the company's international assets in Germany, France and the United Kingdom have no apps, creating a great revenue generator down the road. I also think that the company will begin an acquisition spree on nearby European countries to its existing assets to expand within the region.
If shares price at $21, RetailMeNot will have a market capitalization of $1.05 billion (based on 50.2 million shares). However, with significant growing revenue and profitability, this is a company that could take off in its first day of trading. I also think with international sales picking up, revenue will see strong double digit gains for several years. If you have a chance to get in below $25, I would consider going long this coupon giant.