Sunday, June 12, 2011

About that Groupon IPO......

Chris O'Brien warns at Mercurynews.com that the upcoming Groupon IPO may not be a good thing amidst all the frenzy over the upcoming stock sale:

"The Chicago-based company basically invented -- or at least perfected -- the white-hot daily deal concept and has enjoyed a meteoric rise. But its filing revealed a number of troubling weaknesses, most glaringly its lack of profits.

There was one aspect of the IPO filing that I found especially disturbing: The large amounts of stock that executives and investors have already cashed out. Insiders have pocketed hundreds of millions of dollars that Groupon desperately needs to keep operating.

This represents a bright red flag.
"

Some of this starts to remind one of 1999:

"Worse, unlike many other high-flying Web companies, Groupon turns out to be very unprofitable, and growing more so. In the most recent quarter, the company lost $117 million on $644 million in revenue. With only $208 million in cash on hand, the company urgently needs the $750 million it hopes to raise in the IPO.

The company shouldn't be so desperate. In January, Groupon announced that it had raised $950 million in venture capital.

But of that money, $810 million went into the pockets of insiders such as CEO Andrew Mason ($10 million), Lefkofsky ($60 million) and early-stage venture backer NEA ($70 million) and Accel Partners ($19 million). As with Groupon, the venture firms also are subject to the restrictions of the quiet period and thus cannot comment.

Again, no one would begrudge the founders taking a little money off the table, as Solomon suggests. But using the company's momentum to raise and then pocket such large amounts of money -- money the company itself needs -- looks reckless.
" Column

A few quotes from Groupon's SEC filing:

"Our business has grown rapidly as merchants and consumers have increasingly used our marketplace. However, this is a new market which we only created in late 2008 and which has operated at a substantial scale for only a limited period of time. Given the limited history, it is difficult to predict whether this market will continue to grow or whether it can be maintained. We expect that the market will evolve in ways which may be difficult to predict. For example, we anticipate that over time we will reach a point in most markets where we have achieved a market penetration such that investments in new subscriber acquisition are less productive and the continued growth of our gross profit will require more focus on increasing the rate at which our existing subscribers purchase Groupons. It is also possible that merchants or customers could broadly determine that they no longer believe in the value of our current services or marketplace. In the event of these or any other changes to the market, our continued success will depend on our ability to successfully adjust our strategy to meet the changing market dynamics. If we are unable to do so, our business could be harmed and our results of operations subject to a material negative impact
. "

This sounds good:

"Our business has grown rapidly as merchants and consumers have increasingly used our marketplace. However, this is a new market which we only created in late 2008 and which has operated at a substantial scale for only a limited period of time. Given the limited history, it is difficult to predict whether this market will continue to grow or whether it can be maintained. We expect that the market will evolve in ways which may be difficult to predict. For example, we anticipate that over time we will reach a point in most markets where we have achieved a market penetration such that investments in new subscriber acquisition are less productive and the continued growth of our gross profit will require more focus on increasing the rate at which our existing subscribers purchase Groupons. It is also possible that merchants or customers could broadly determine that they no longer believe in the value of our current services or marketplace. In the event of these or any other changes to the market, our continued success will depend on our ability to successfully adjust our strategy to meet the changing market dynamics. If we are unable to do so, our business could be harmed and our results of operations subject to a material negative impact." (P.49)

But then it states:

"We incurred net losses of $389.6 million and $102.7 million in 2010 and the first quarter of 2011, respectively, and had an accumulated deficit of $522.1 million as of March 31, 2011. We anticipate that our operating expenses will increase substantially in the foreseeable future as we continue to invest to increase our subscriber base, increase the number and variety of deals we offer each day, expand our marketing channels, expand our operations, hire additional employees and develop our technology platform. These efforts may prove more expensive than we currently anticipate, and we may not succeed in increasing our revenue sufficiently to offset these higher expenses. Many of our efforts to generate revenue from our business are new and unproven, and any failure to increase our revenue could prevent us from attaining or increasing profitability." SEC Filing

Yup. Going to the moon.


Note: The Wall Street Journal had a few things to say about this IPO and its definitely worth reading.

3 comments:

Door Smart said...
This comment has been removed by the author.
Ticked_off_in_MS said...

Sounds like something the gov ment would try and set up. I don't think they've got a prayer, with all the others starting to do same thing and bleeding cash like they are and insiders pulling all that cash out that the company is needing. Not a good sign.

Anonymous said...

Maybe they should hire Marshall Wolfe. He knows how to handle business and money and knows all about everything as long as it is somebody elses money.

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Trollfest '07 was such a success that Jackson Jambalaya will once again host Trollfest '09. Catch this great event which will leave NE Jackson & Fondren in flames. Othor Cain and his band, The Black Power Structure headline the night while Sonjay Poontang returns for an encore performance. Former Frank Melton bodyguard Marcus Wright makes his premier appearance at Trollfest singing "I'm a Sweet Transvestite" from "The Rocky Horror Picture Show." Kamikaze will sing his new hit, “How I sold out to da Man.” Robbie Bell again performs: “Mamas, don't let your babies grow up to be Bells” and “Any friend of Ed Peters is a friend of mine”. After the show, Ms. Bell will autograph copies of her mug shot photos. In a salute to “Dancing with the Stars”, Ms. Bell and Hinds County District Attorney Robert Smith will dance the Wango Tango.

Wrestling returns, except this time it will be a Battle Royal with Othor Cain, Ben Allen, Kim Wade, Haley Fisackerly, Alan Lange, and “Big Cat” Donna Ladd all in the ring at the same time. The Battle Royal will be in a steel cage, no time limit, no referee, and the losers must leave town. Marshand Crisler will be the honorary referee (as it gives him a title without actually having to do anything).


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This is definitely a Beaver production.


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Trollfest '07

Jackson Jambalaya is the home of Trollfest '07. Catch this great event which promises to leave NE Jackson & Fondren in flames. Sonjay Poontang and his band headline the night with a special steel cage, no time limit "loser must leave town" bout between Alan Lange and "Big Cat"Donna Ladd following afterwards. Kamikaze will perform his new song F*** Bush, he's still a _____. Did I mention there was no referee? Dr. Heddy Matthias and Lori Gregory will face off in the undercard dueling with dangling participles and other um, devices. Robbie Bell will perform Her two latest songs: My Best Friends are in the Media and Mama's, Don't Let Your Babies Grow up to be George Bell. Sid Salter of The Clarion-Ledger will host "Pin the Tail on the Trial Lawyer", sponsored by State Farm.

There will be a hugging booth where in exchange for your young son, Frank Melton will give you a loooong hug. Trollfest will have a dunking booth where Muhammed the terrorist will curse you to Allah as you try to hit a target that will drop him into a vat of pig grease. However, in the true spirit of Separate But Equal, Don Imus and someone from NE Jackson will also sit in the dunking booth for an equal amount of time. Tom Head will give a reading for two hours on why he can't figure out who the hell he is. Cliff Cargill will give lessons with his .80 caliber desert eagle, using Frank Melton photos as targets. Tackleberry will be on hand for an autograph session. KIM Waaaaaade will be passing out free titles and deeds to crackhouses formerly owned by The Wood Street Players.

If you get tired come relax at the Fox News Tent. To gain admittance to the VIP section, bring either your Republican Party ID card or a Rebel Flag. Bringing both will entitle you to free drinks.Get your tickets now. Since this is an event for trolls, no ID is required, just bring the hate. Bring the family, Trollfest '07 is for EVERYONE!!!

This is definitely a Beaver production.

Note: Security provided by INS
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