Which Daily Deal IPO Is Worth the Hype?

It's been a big year for tech IPOs, most of which have seen wild price swings as the competition multiplies. Daily deals site LivingSocial is on track to raise more than $200 million in private funding this week, a move that will value the company near $6 billion. Could this mean the Groupon (Nasdaq: GRPN  ) rival is headed for an IPO? Let's look at which company is better equipped to lead the digital deals market.

Competitive landscape
D.C.-based LivingSocial's latest round of funding comes just three weeks after Groupon's initial public offering, which was up 31% on the stock's first day of trading but which traded below its $20 offering price for the first time today.

Groupon is currently the largest provider of deals, with 53% of the market. Still, Groupon sidestepped any mention of LivingSocial as a competitor in its IPO roadshow, which could indicate the company's vulnerability. The real question is whether Groupon can become and stay profitable for the long run.

Both LivingSocial and Groupon, face increased competition from cash-heavy tech companies including Google (Nasdaq: GOOG  ) , Microsoft (Nasdaq: MSFT  ) , and Amazon (Nasdaq: AMZN  ) .

The search-giant has Google Offers, which sends digital coupons to a subscriber's email inbox. Microsoft comes to the game with Bing Deals, offering users a daily email highlighting deals in their area.

But it's Amazon's move into online deals that could help LivingSocial overtake Groupon, as the leader in digital discounting. LivingSocial currently provides deals for Amazon's local discount site Amazon Local. This partnership could hurt Groupon, as LivingSocial leverages the shopper-base of the world's biggest e-retailer.   

A strategic partnership
In December of last year, Amazon invested $175 million in LivingSocial, and it continues to back the coupon company today.

New supporters have also stepped up including JPMorgan Chase (NYSE: JPM  ) , which is said to have offered a $100 million revolving line of credit.

To IPO, or not to IPO?
This cues us into the fact that early investors are looking for a payoff -- dare we say, in the form of an IPO? Most expect an IPO soon. However, unlike Groupon, whose late-stage private financing went to existing investors, LivingSocial's private financing will go toward its operations.

That may be comforting when it does come time for a public offering. LinkedIn (NYSE: LNKD  ) , by contrats, plummeted in early November following the company's announcement that inside investors would cash out 8.7 million shares through a secondary offering. A company can't focus on growing its business when its major investors are more concerned about getting out while the getting's good.

LivingSocial looks to be on the right track in terms of smart partnerships with industry leaders. I recommend keeping an eye on both companies as LivingSocial moves toward an initial public offering. Add these stocks to your watchlist, or let me know which daily deals stock you prefer in the comments box below.

Fool contributor Tamara Rutter does not own shares of any companies mentioned in this column. Follow her on Twitter for The Motley Fool's daily roundup, and other Foolish tidbits @TamaraRutter. The Motley Fool owns shares of Microsoft, Google, and JPMorgan Chase. Motley Fool newsletter services have recommended buying shares of Google, Amazon.com, and Microsoft, as well as creating a bull call spread position in Microsoft. 

Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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