Groupon IPO: DOA?

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There's no two ways about it -- the stock market is a mess. Up one day, down the next, stressing out investors and CFOs alike. Across the market, companies that were expected to go public through initial public offerings in August and September have announced they're postponing their debuts until the turmoil subsides. And now it seems Groupon is the latest victim of these stressful times we live in.

On Friday, we learned that an ex-Groupon employee has sued his employer, alleging failure to pay overtime and failure to pay overtime at an appropriate rate, in violation of the federal Fair Labor Standards Act. Seeking class action status, the plaintiff claims he has upwards of 2,000 current and former Groupon employees ready to join suit if his "class" is certified. If this is true, I don't see why current employees would raise a stink on IPO-eve, just before they become IPO millionaires. If they do join the suit, it will probably mean they know the IPO isn't happening -- or at least not soon. (And in fact, just last week Groupon postponed the start of its pre-IPO investor roadshow.)

Bad timing
Groupon, naturally, denies the plaintiff's allegations, dismissing them as just like "class action lawsuits filed against Cisco (NAS: CSCO) , Salesforce (NYS: CRM) , Nortel and countless others." A nuisance, no more, and without merit.

Merit aside, though, the lawsuit comes at an inconvenient time for Groupon. While still growing revenues rapidly (first half revenues this year were up more than ten times over first half 2010 levels) the company's encountering stiff competition from the likes of Google (NAS: GOOG) Offers, Amazon.com-backed (NAS: AMZN) LIvingSocial, and Travelzoo (NAS: TZOO) . Groupon's also starting to attract criticism for its accounting practices. Meanwhile, would-be investors worry the company's spending too heavily on advertising to ward off its rivals -- with the result being Groupon has lost nearly 10 times as much money in the first half of this year as it did in 2010.

Worse still, the spending doesn't seem to be helping. According to market researcher Experian Hitwise, August traffic on Groupon's website was off 50% from its June peak -- versus a 27% gain in traffic at LivingSocial ...

Foolish takeaway
The way things are going for Groupon today, maybe its employees think they've got a better chance of striking it rich by suing their company than by waiting around for the IPO ... an IPO whose chances of success get dimmer by the day.

Even if Groupon is toast, though, its biggest rival seems to be doing fine.Add Amazon.com to your Fool Watchlist, and keep close watch on LivingSocial's progress toward IPO-dom.

At the time this article was published

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