Coupons.com Surfs Digital Discount Wave Ahead Of IPO

THE BUZZ

The first full-on coupon campaign was launched by Coca-Cola in 1894.

Over the next 19 years, 8.5 million coupons were redeemed at soda fountains nationwide — and suddenly Coke and the coupon (from the French term meaning to cut) became household words.

While print coupons are still the most widely used, digital coupons have caught on as a mainstay.

The researcher eMarketer estimates 97 million U.S. adults accessed coupons via the Internet in 2013. This figure should grow to 100 million in 2014. Half of U.S. adult Internet users redeemed a digital coupon for shopping last year.

An early entrant in digital coupons was RetailMeNot (SALE), which launched its IPO in July 2013. Priced at $21, the stock has more than doubled since then.

Now another digital coupon provider has stepped up to the plate. Coupons.com plans to raise $130 million or more by offering 10 million shares at a price range of $12 to $14. At the midpoint of the proposed range, the company would have a fully diluted market value near $1 billion.

Newspapers and direct mail have traditionally been the primary channels for distributing coupons. But with the decline in newspaper readership, the effectiveness of traditional channels has declined as well, Coupons.com said in its S-1 prospectus IPO filing.

The company says digital coupons are redeemed at higher rates and are more effective than print coupons. "We believe that the simplicity of digital coupons is broadening the demographic reach and driving the increased use of digital coupons," the company said.

THE COMPANY

Coupons.com says about 2,000 brands from over 700 consumer packaged goods companies use its platform "to engage consumers at the critical moments when they are choosing which products they will buy and where they will shop.

The coupons are accessed by consumers through Coupons.com as well as through mobile and social networking channels, and through the websites of providers of consumer goods and retailers.

Most of Coupons.com's revenue comes from digital promotion transactions. When a consumer selects a digital coupon on its platform by printing it or saving it to a retailer online account for redemption, Coupons.com is paid a fee, even if the coupon is not redeemed.

It also collects fees when a consumer makes a purchase using a coupon code.

Coupons.com says that in 2013 it generated revenue from 1.3 billion transactions, in which consumers selected a digital coupon or redeemed a coupon code through its platform. That represented an increase of 43% from the same period in 2012.

Many of the leading food, beverage, drug, personal and household product manufacturers are customers of Coupons.com, including General Mills (GIS), Kroger (KR), Walgreen (WAG), CVS Caremark (CVS) and Johnson & Johnson (JNJ).

RISK/CHALLENGES

The market for digital coupons is highly competitive and fragmented. This includes competition from cash-back and loyalty websites, search engines such as Google (GOOG), social networks like Facebook (FB) and comparison shopping sites.

In addition to offline coupon service, newspapers, magazines and other media companies with coupon promotions, rivals include RetailMeNot, Savings.com, TechBargains.com, SmartSource.com, and Ebates.com, which is reportedly preparing for an IPO.

"There's room for multiple players," said Josef Gorowitz, CEO of privately held Prodege, which runs Swagbucks.com, a site that offers rewards for participating in various activities. "We're in the early stages of what this industry can do, but the market is maturing. These IPOs indicate a growing market of savvy, deal-seeking reward hunters who are proud to be seen as smart consumers.

THE RESULTS

Coupons.com's 2013 revenue rose 49% from the prior year to $168 million. That was more than double the 23% revenue growth recorded in 2012.

The company reported a net loss of $11.2 million last year, largely due to steep investments of $61.8 million in sales and marketing and $40 million in research and development. That figure was a sharp improvement from a net loss of $59 million the previous year, even though sales, marketing and R&D expenses stayed about the same.

Over the past six quarters, Coupons.com has lessened its net losses to the point where it turned a profit in the fourth quarter of 2013. Quarterly revenue rose 47% to $52.6 million from the year-earlier quarter as it reported a Q4 profit of $1.5 million.

Francis Gaskins, founder of IPOdesktop.com and director of research at Equities.com, said it's likely that Coupons.com will get institutional investor support, in that 81% of the stock float at RetailMeNot is held by institutions.

"While Coupons.com is not the pre-eminent company in this space, I think institutional investors will want to participate in owning the stock," he said.

PROCEEDS

The company estimates net proceeds from the sale of 10 million shares of common stock will be $116.6 million, assuming an initial public offering price of $13.

If the underwriters' option to purchase additional shares is exercised in full, it estimates an additional $18 million in proceeds.

Coupons.com intends to use the net proceeds primarily for general corporate purposes, including working capital, sales and marketing activities, and general and administrative matters.

THE MANAGEMENT

Steven Boal Chief executive and president Boal, 48, founded Coupons.com in 1998. He previously served as vice president of business development for Integral Development, a privately held financial software company. He has a B.A. from the University of Albany.

Mir Aamir Chief financial officer Aamir has served as CFO and chief operating officer since October. He previously was president of customer loyalty and digital technologies at Safeway, among other management roles at the grocer dating back to 2005. He has an MBA from the University of Chicago.Coupons.com

Mountain View., Calif.

(650) 605-4600 coupons.com Lead underwriter: Goldman Sachs Offering price: $12-$14 Expected date: March 6 Ticker: COUP