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Summary

  • Provides digital coupons.
  • For Q4 2013 coup's P/E is less than Retailmenot's (SALE).
  • SALE is up 73% since December 9, 2013.

Update: Since this article was submitted COUP priced at $16, the conclusion remains the same.

Based in Mountain View, CA, Coupons.com (NYSE:COUP) scheduled a $130 million IPO on the NYSE with a market capitalization of $945 million at a price range midpoint of $13 for Friday, March 7, 2014.

The full IPO calendar is available at IPOpremium.

SEC Documents
Manager, Joint managers: Goldman Sachs, Allen & Company, BofA Merrill Lynch, RBC Capital Markets

Co-Managers: None

Summary
COUP operates a leading digital promotion platform that connects great brands and retailers with consumers.

COUP loss % of revenue was -7% in 2013, an improvement from -53% in 2013, and COUP moved to profitability in its seasonally strong December quarter.

The decrease in loss rate for all of 2013 was partially due to COUP's cutting sales and marketing expense to $62 million from $64 million, while top line revenue increased 50% to $168 million from $112 million.

It's unusual for an IPO to cut absolute sales and marketing expenses going into an IPO.

However, both companies were profitable in the December, 2013 quarter, with COUP having a lower P/E ratio, 158 to 340.

Valuation

The only public competitor is in the digital coupon segment is Retailmenot (NASDAQ:SALE), which IPO'd July 18, 2013 at $21 and closed the first day at $27.70 up 32%. It later peaked at $39.10 September 24, 2013 then fell.

On December 9, 2013 SALE was $26, and Feb 25 it closed at $45 up 73%, perhaps in anticipation of COUP's IPO shining an IPO light on the digital coupon space.

Conclusion
The first company to IPO in the digital coupon space was Retailmenot July 18th, 2013.

SALE is up 73% from December 9, 2013. See 'valuation' and chart below.

81% of SALE's float is owned by institutions, many of whom can be expected to add COUP to their portfolio as a way to play the digital coupon space.

Based on annualizing the December 2013 quarter, COUP is priced at a lower P/E than SALE, 158 to 340. Based on full 2013 year results SALE showed a profit and COUP showed a loss.

The rating on COUP is buy on the IPO.

To put the conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced above.

Glossary

Valuation Ratios

Mrkt

Price /

Price /

Price /

Price /

% offered

Cap (NYSE:MM)

Sls

Erngs

BkVlue

TanBV

in IPO

COUPONS.com

$945

5.6

-85.9

5.1

5.5

14%

COMPARE/CONTRAST

Valuation Ratios

Mrkt

Price /

Price /

Price /

Price /

Gross

2013 yr

Cap

Sls

Erngs

BkVlue

TanBV

Profit%

COUPONS.com

$945

5.6

-85.9

5.1

5.5

69%

RetailMeNot *

$2,650

9.0

473.2

6.1

15.5

94%

*net income to common stockholders

Groupon (NASDAQ:GRPN)

$5,620

2.2

-73.9

7.9

12.1

15%

Annualizing

Mrkt

Price /

Price /

Price /

Price /

Gross

Q4 '13

Cap

Sls

Erngs

BkVlue

TanBV

Profit%

COUPONS.com

$945

5.6

157.5

5.1

5.5

73%

RetailMeNot *

$2,650

8.4

339.7

6.1

15.5

94%

*net income to common stockholders

SALE does have a higher gross margin of 94% compared to 73% based on the December, 2013 quarter.

Both SALE and COUP are seasonal businesses, because they get most of their profits in the December quarter.

Groupon is not in the same business league because GRPN's gross margin % of revenue is only 15%, which is not in the same ballpark as SALE and COUP.

Business
COUP operates a leading digital promotion platform that connects great brands and retailers with consumers.

During 2013, COUP generated revenue from over 1.3 billion transactions in which consumers selected a digital coupon or redeemed a coupon code offered through COUP's platform, an increase of 43% over the same period in 2012.

Market

In 2013, 315 billion total coupons were distributed, representing an aggregate discount value of $510 billion, with 2.8 billion redeemed representing an aggregate discount value of $3.5 billion, according to an annual industry report by NCH Marketing Services, Inc., or NCH, a provider of coupon audit and settlement services. Increasingly, CPGs (consumer package goods) and retailers are directing a greater proportion of their spending to digital promotions.

COUP's platform

COUP's platform serves three key constituencies:

  • More than 700 CPGs (consumer packaged goods) representing over 2,000 brands;
  • Retailers operating approximately 58,000 store locations in North America; and
  • Consumers who (NYSE:I) made an average of 17 million monthly unique visits to Coupons.com and COUP's other sites during 2013, (ii) visited the sites of COUP's CPGs, retailers and publishers, and (NASDAQ:III) downloaded COUP's mobile apps more than seven million times.

Digital delivery
COUP delivers digital coupons to consumers, including coupons and coupon codes, and display advertising through its platform which includes web, mobile and social channels, as well as those of CPGs (consumer packaged goods), retailers, and COUP's extensive network of 30,000 third-party websites, or publishers, that display COUP's coupon and advertising offerings on their websites.

Platform distribution

COUP's platform distributes digital promotions at scale across multiple channels enabling CPGs and retailers to deliver promotions and media advertisements to consumers at the point when they are most engaged and likely to make a purchasing decision.

COUP's platform is comprised of promotional channels, including COUP's Digital FSI Network, which is COUP's network of owned and third-party websites that display COUP's coupons and advertising offerings, retail point of sale solutions, mobile solutions, publishing tools, which enhance the effectiveness of the promotions offered, and media advertising.

COUP's secure technology gives CPGs control over the number of coupons distributed and the number of CPG-authorized activations per coupon, which enhances the security of digital coupons.

Revenue generation
COUP generates revenues primarily from digital promotion transactions.

Each time a consumer selects a digital coupon on COUP's platform by either printing it for physical redemption at a retailer or saving it to a retailer online account for automatic digital redemption, COUP is paid a fee that is not dependent on the digital coupon being redeemed.

For coupon codes, COUP is paid a fee when a consumer makes a purchase using a coupon code from the platform. If COUP delivers a digital coupon or coupon code on a retailer's website or through its loyalty reward program, or the website of a publisher, COUP generally pays a distribution fee to the retailer or publisher which is included in cost of revenues.

COUP also generates advertising revenues through the placement of online advertisements from CPGs and retailers which are displayed with coupon offerings on COUP's websites and those of publishers.

COUP is paid a fee for the display of advertisements on a per impression or a per click basis. Advertising placements are generally sold as part of insertion orders for coupons as an integrated sale and not as a separate transaction.

Customers

CPG (consumer package goods) customers include many of the leading food, beverage, drug, personal and household product manufacturers.

COUP primarily generates revenue from CPGs through coupons offered through COUP's platform and to a lesser degree, through the display of advertising.

COUP retailers include leading grocery, drug and mass market merchandisers which distribute and accept coupons offered through COUP's platform.

COUP retailers also include a broad range of specialty stores, including clothing, electronics, home improvement and many others which offer codes through our platform.

Growth Plan

  • Increase revenues from CPGs (consumer papackaged goods) already on COUP's platform.
  • Deepen integration of retailers with COUP's platforms.
  • Grow the current core CPG and retailer customer base and add new manufacturers and retailers from additional industry segments.
  • Continue to grow consumer use of COUP's digital promotion offerings.
  • Grow international operations.

Dividend Policy

No dividends are planned

Intellectual Property

As of December 31, 2013, COUP holds or has exclusive rights to 14 issued patents in the United States and nine patents that have been issued outside of the United States with terms expiring between 2016 and 2031.

Additionally, COUP has 45 patent applications pending in the United States and as well as additional patent applications pending in Europe and other international jurisdictions.

Competition

COUP competes against a variety of different businesses with respect to different aspects of its business, including:

traditional offline coupon and discount services, as well as newspapers, magazines and other traditional media companies that provide coupon promotions and discounts on products and

services in free standing inserts or other forms, including Valassis Interactive, Inc., News America Marketing Interactive, Inc. and Catalina Marketing Corporation;

providers of digital coupons such as Valassis' Redplum.com and News America Marketing's SmartSource, companies that offer coupon codes such as RetailMeNot, Inc, Exponential Interactive Inc.'s TechBargains, Savings.com, Inc. and Ebates Performance Marketing, Inc., and companies providing other e-commerce based services that allow consumers to obtain direct or indirect discounts on purchases;

Internet sites that are focused on specific communities or interests that offer coupons or discount arrangements related to such communities or interests; and companies offering other advertising and promotion related services.

5% stockholders

  • Steven R. Boal 10.81%
  • Michael Walsh 5.22%
  • Passport Ventures, LLC 22.56%
  • Entities affiliated with T. Rowe Price 11.66%
  • Entities affiliated with Warren Spieker, Jr. 8.41%
  • Abu Dhabi Investment Council 5.82%
  • SMALLCAP World Fund, Inc. 5.25%

Use of proceeds

COUP expects to net $116.6 million from its IPO. Proceeds are allocated as follows:

  • primarily for general corporate purposes, including working capital, sales and marketing activities, general and administrative matters and capital expenditures.
  • for the acquisition of, or investment in, technologies, solutions or businesses that complement its business, although we have no present commitments or agreements to enter into any acquisitions or investments at this time.
  • satisfy COUP's anticipated tax withholding and remittance obligations related to the settlement of COUP's outstanding RSUs.

Disclaimer: This AQXP IPO report is based on a reading and analysis of AQXP's S-1 filing, which can be found here, and a separate, independent analysis by IPOpremium.com. There are no unattributed direct quotes in this article.

Source: IPO Preview: Coupons.com