10.22.2011
02.27.2013 update (page bottom)
Groupon Rushes IPO to Save the Company?
original article written by Net Advisor™
On June 16, 2011 I talked about near-term risks in some hot high profile IPO’s such as Pandora, Linked-In, the Chinese IPO, Renren and Groupon. The one company that delayed its filing to go public was Groupon.
Although these are some neat companies with seemingly great services, consumers pretty much want to pay little to nothing for them. This is a problem if you are running a for-profit business.
Today, the last company on my June IPO list, Groupon is now rushing to go public. The company is going public not because it’s a good time to go public, or that volatility in the market has calmed down. The company is rushing to go public because their business model may be rapidly deteriorating.
The company announced that they cut their revenue prospects by 50% from $1.5 Billion to $688 million during the last quarter.
Groupon also announced that they are losing money, and blamed this on the hiring of 1,000 new staff.
“Groupon’s updated S-1 filing shows that the company’s second-quarter loss more than doubled as it hired more than 1,000 new staff. The company’s second-quarter deficit jumped to $102.7m, up from the $36.8m loss in the same period last year.”
— Source: The Guardian.UK, 08-10-2011
The company had an offer less than a year ago to be bought from Google for $6 Billion. Groupon rejected the Google offer, much like Yahoo, Inc. rejected Microsoft’s $40 Billion buyout offer in 2008. Yahoo’s market capitalization has since been cut in half to currently about $20 Billion.
Insiders Cash Out BEFORE the IPO?
If the company is such a booming promising business, how come the company took in some $1.12 Billion from new investors, and 84% ($942 Million) of that money went to help cash out the insiders and earlier investors? So, the company is only keeping 16% of $178 Million from new investor’s money to operate when the company really needs cash now to stay afloat?
Why did most insider investors cash out BEFORE the company goes public?
The company may not be growing so hot like they thought they would. The average registered Groupon member spends -75.47% less per month than they did just two years ago [Math (from chart below): $5.30 – $1.30 = $4.00; then $4.00 divided by $5.30 = -75.47%]. This amount is expected to continue falling in 2012 (see video below).
Golden Ticket or Rotten Egg?
The company is hoping to raise anywhere from $540 Million to $621 Million (PDF), down from $750 Million last June 2011.
If the company does bring in the IPO cash as previously stated, the company estimates its value at $10.8 Billion, half of what they expected previously (Source: Reuters). This is more than the Google offer last December 2010. However, keep in mind that a stock is only worth what someone is willing to pay for it. Groupon also had better financials in December 2010 than they do now. With that said, keep in mind that based on its balance sheet, the company is technically insolvent.
This is an excellent video from CNBC on 10-19-2011: (key point: 1:00 min into video)
What’s Next?
I would expect a lot of hyped fanfare to help bid up this stock on its IPO day. BE CAREFUL. Ignore the old hype, it’s outdated. The stock may get a pop on all the IPO hype because most people know about the website and know nothing about the company’s financials. I would expect the stock to tank quickly after the IPO. As I tweeted on June 2, 2011, “Prob will avoid this one too.”
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Recommended reading before investing:
Read Groupon, Inc.’s SEC S-1 Filing (June 22, 2011)(PDF File 276 pps, 2.1MB) (share link only)
Net Advisor™ is a Finance & Risk Manager, is available an expert witness, and performs investigative work (limited) mostly in the financial arena. See bio for more. Legal Disclaimer
Graphics & video credit: CNBC
Original Content Copyright © 2011 Net Advisor™ All Rights Reserved.
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02.27.2013 Update:
Groupon’s stock has trended lower since the 2011 IPO. It seems that each quarter something brings hope to investors in this stock, as if the government’s deficit would also vanish.
Groupon’s stock traded higher today up +7.79% before the earnings news release. After the bad news hit (again) the stock crashed, -26% after hours (Source: Yahoo! Finance PDF). A technical crash is a one day -20% move in a stock.
Groupon’s stock hit an all-time high of $26.89 on 11-18-2011 shortly after its IPO (Chart). The stock recently traded down to $4.42 or down -83.56% since it’s November 2011 high (Source: Yahoo! Finance PDF)
Although anything is possible in a business, remembering the days of the .com era tells me this company might continue to have more issues than Sports Illustrated. MAYBE they would be better off being privately held, that way they don’t have to meet any earnings expectations. However, how long will investors hold on to a company that seems to keep disappointing?
Disclosure: NetAdvisor™ or clients have no position in Groupon.
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