Groupon IPO becomes laughing stock

Groupon South Africa
Oh my gosh, now they’ve gone and done it. Groupon has filed for an IPO, and no-one is really keen to get on the bubble with them. Of all the posts already on the Internet about it, 98% of them are against it, for numerous reasons.
This is a real blow for group buying worldwide, since we’re all in the same industry, and when one of us gets bad publicity, the others get a little of the stench sprayed on us as well. In fact, I’d bet Groupon’s little Google adverts are running right now above this post. Probably for burgers. Num num.
So what are the facts that we know about this IPO? After all, it’s not entirely unexpected at all – they’ve been hinting at this for some time now.

  • Groupon could seek to raise as much as close to $1 billion at a valuation of about $20 billion
  • All 2010 revenues totaled $713 million.
  • Groupon’s first quarter 2011 revenues reached $645 million. That sounds good.
  • In 2010 and the first quarter of 2011, Groupon spent $241.5 million and $179.9 million, respectively, on online marketing initiatives relating to subscriber acquisition.
  • Groupon counts customer acquisition costs as a capital investment.
  • The company lost $413 million during 2010.

Groupon Revenue
This last fact is where the questioning starts. It’s not that a start-up has spent more money than it has made. It’s that it’s done this two years in a row, with the second year being a much larger loss. Couple this with the following and you’ve got shares that you don’t want in your basket:

  • Groupon has 83 million email subscribers. However, numbers have been slowing down. Still, in my opinion, this isn’t a problem – they are leaders in most countries.
  • Groupon sold 30 million coupons last year and 28 million in the first three months of 2011. This also sounds fine, but they are selling less and less deals per merchant.
  • Groupon has 7,000+ employees. Half of them are sales employees. This is quite a large overhead to keep up with, and possibly why Groupon pays its sales people less than competitors (even in South Africa).
  • Groupon’s business grew 2,241% between 2009 and 2010. But their expenses grew by over 5,732%!! Don’t expect to see profits anytime soon, if ever.
  • Who’s in control of Groupon? Lightbank partner Eric Lefkofsky owns 21% of the company’s voting shares. Mason owns 7.7%. These two and others have sold out hundreds of millions of dollars in shares already!

The crazy spending, the owners taking out so much money and the timing of it all, aren’t in favour of a good IPO. There are too many red flags, and as everyone knows, where there’s smoke, there’s fire…
Would you take millions if your start-up was burning cash like it was 1999? Would you expand so furiously without checking carefully enough so that your overseas operations bleed you dry? Would you have turned down an offer from Google for $6 billion earlier in the game?
My views will always going to be biased – I run a group buying site and also believe in the industry. Groupon is a competitor, but also a group buying company in it’s own right.
So the question for this post clearly is: Would YOU invest in Groupon?