Jackson Jambalaya

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.