Early reports suggest that Groupon will be valued at around $12bn when its shares go on the public market today.

This is higher than the $6bn offer they got from Google around a year ago that they famously turned down. It is also much lower than the earlier forecasts, fuelled by their CEO Andrew Mason, that were in the region of $25bn.

Some people are suggesting that the lower valuation is now a good buy and apparently demand for shares is high. I think this is at least in part down to the pent up demand to buy into any social network type companies and I have to say that I have some real concerns about the future of this business.

First, Groupon has been growing amazingly quickly. In just three years their revenues will be more than $1bn for 2011 and they have assembled a global workforce of 10,500 people. This makes Groupon quite simply the fastest growing company ever based on these measures.

In some ways this has to be seen as a really positive thing. If a company can achieve this in three years then surely the sky is the limit moving forward as a public company?

I’m not so sure. The revenue growth has been jet propelled by huge sales and marketing budgets and I really don’t think this is sustainable. Indeed their latest figures suggest their revenue growth is already slowing. They greatly reduced the marketing spend in the last quarter mainly it seems to reassure investors that they could bring costs under control. But if that means growth slows then you have to ask the question – is Groupon’s amazing growth only sustainable by spending huge amounts on marketing therefore calling into question whether the business can actually make any money? It seems either growth will slow or the business will remain a long way away from making a profit and yet investors will demand both over time.

There have been some extraordinary events in May that makes me feel it will be seen as a defining month for the cloud (as opposed to evidence of a second internet bubble as some have been saying).

Firstly, we had the Microsoft acquisition of Skype for $8.5B – more than three times what the previous investors paid only two years ago and around 10x 2010 revenues. Whether you think Microsoft overpaid for Skype or not (and only time will tell – see my post) what it does show is the huge value they placed on internet-based voice and video communications of which Skype is not only the clear leader but also the verb that’s used to describe it. It also showed the huge cash reserves the big technology companies have and how much of it they’re prepared to spend to stay competitive in world that is moving more and more into the cloud – a world that is in danger of passing them by.

Secondly, we had LinkedIn’s IPO delivering results that exceeded virtually all expectations. Their shares opened at the higher end of the expected range at around $40 and reached $94 at the end of the first day reflecting a 109% increase. The company’s valuation had reached almost $9B and nearly 20x current year revenues (expected to be in the $450-500M region). Whether this is sustainable or not (probably not) it shows the level of excitement and belief in the potential of social networking and, more broadly, of cloud computing.

Lastly, we saw Salesforce, the leader in the SaaS market, report record quarterly results with revenues up 34% to $504M and on track to be the first SaaS company to exceed $2B for the year. Marc Benioff, Salesforce’s outspoken CEO, talked about being a top 5 software company overall showing how cloud companies are now starting to measure themselves against the whole market rather than just within their category; he also had some sharp words to say about Microsoft:

‘Customers continue to want visionary products that give them a competitive advantage, not the me-too Zune-type products locking them into these old, proprietary, desktop-driven platforms that are dying off.’

There has been so much talk recently about the new generation of social network companies and how they are not only attracting huge user bases but also huge valuations. On the one side, there is talk of multi-billion dollar valuations and on the other that this signals the start of another bubble with valuations expected to come crashing down in the not too distant future.

So I thought I’d try to break down the numbers and look at six of the hottest companies side by side to see what we can learn. I’m not interested in looking at each business individually – that’s been done to death. What I want to do is to look at the numbers relatively to see how they compare against one another and what can be learned from that.

I believe there is no doubt that some of these companies will justify their huge valuations and go on to be very large public companies and a brand that is part of our lives for many years to come. But there will be others that will be exposed as unsustainable and will end up either being sold or their growth trajectory will come to a grinding halt as they are either unable to scale or are overtaken by a competitor they didn’t see coming. I think it’s only in comparing these companies that we can start to predict who the lasting brands will be and what these businesses need to do to live up to the hype.

I’ve taken six of the most highly valued social network companies and looked at both user and revenue numbers and then followed that through to value. In all cases I’ve tried to take data that has been released by the business itself, but in the absence of that, I’ve used the most credible sources I could find or a blended version of various numbers.

While these numbers are still only estimates, and are also changing rapidly, I think it is still interesting to look at them alongside each other and there are various points that stand out for me.