Can we call it a bubble yet?
Those of us who were around in the early 2000s recognize this game. Brand new ventures filing for IPOs based on 'amazing potential' and even more amazing valuations.
This is all going to come crashing down soon. The question is whether it happens before or after Bitcoins. :)
Absolutely wild. Revenue was almost as much in Q1 2011 as it was in all year in 2010 ($645m vs. $713m) with a 20,000% revenue growth since June 200.
They are hoping to raise "close to $1 billion at a valuation of about $20 billion." [1]
And they still aren't turning a profit. (~15% loss Q1 2011 and ~54% loss in 2010) [2]
[1] http://online.wsj.com/article/SB1000142405270230374530457636... [2] http://www.sec.gov/Archives/edgar/data/1490281/0001047469110...
Am I wrong, or any idiot can spend 1 billion dollars to make 700M?
It's very scary to me that they scaled and failed to prove they can profit, before going IPO. I have no issue with that tactic as a private company, but you shouldn't go public until you can prove profitability. Otherwise, the bubble word is truly deserved.
My read on this, especially given the extreme flexibility series G investors showed in cashing out founders, is that when Groupon is up and running in a locale, it makes a whole shitload of money.
I also would anticipate from reading the expansion numbers and having a little bit of business experience myself that Groupon grew literally as fast as it possibly could in the last few years; there was no way for them to successfully move any faster, no matter how much cash they were given.
I'm guessing you'll see some gyrations as they continue to try and solidify their global lead, then slow move to profitability, then one day, (if margins hold up) BAM. Major Net Income.
Right now the market clearly is going to reward a company who can get this done successfully in as broad a portion of the world as possible; if they can demonstrate that existing locales are profitable after a certain period of time, they will have happy shareholders as well. It's a landgrab, and Amazon is a good comparison.
If nothing else the timing of this seems suspect to me. The Linked In IPO has investors who missed out champing at the bit for something else. I think Groupon knows their current business model is unsustainable and have picked this moment precisely because the market is particularly irrational right now. (Note: I'm not saying there is a bubble in general, just that the Linked In IPO has created a unique opportunity for them to go public with less scrutiny than would otherwise be the case.)
From what I could make out of the prospectus, the revenue number is the sum of the face value of all coupons sold. Since Groupon has to pay the merchants a predetermined percentage of the face value, I'm having a tough time understanding why the entire face value should be considered as revenue. To take an analogy, this would be like Visa claiming the total value of transactions as revenue instead of the fees it charges the merchants for said transactions. Am I missing something?
From the article:
'Don’t expect profits anytime soon: Groupon hasn’t turned a net profit in any of its first three years of operations, including a net loss of $389.6 million in 2010. The company said it expects its “operating expenses will increase substantially in the foreseeable future ...“'
Sounds very 1990s dot-com bubble to me ...
I'm surprised by the loss they are running. Think how big their cut is. My understanding is that on a 50% off deal, they get half of the merchant's take! Granted their effective cut is lower since they provide some costly/valuable services .. e.g. they pay you right away while redemptions might happen over months. But still ...
I wonder if merchants aren't just curious about the groupon model as opposed to groupon having "cracked the local nut". I guess we'll know in 2-3 years. If their revenue flattens or goes down vs if it keeps going up up and up.
On a side note, I hope this makes Facebook file for their IPO already. For some reason, I feel the Facebook IPO will be a turning point of sorts in the current tech boom. Not sure why though.
I know there are people scraping Groupon deals and sales figures and estimating revenues. Does anyone have the name of these sites? It seems like a hell of a opportunity to sell $10k research reports based on public information to wall street traders.
$200million in ad spend + dozens of competitors spending just as much or more on ads = buy GOOG.
Cue for dozens of Fortune, Newsweek et al articles proclaiming the new bubble. If everyone's so confident in their assertion, go short that stock.
Groupon will grow like hell until there are finally no new deals to lure with left and the 'extreme couponing' lifestyle has been grinded to death (regular couponing will have a place like it always had).
The problem with extreme valuations/bubbles is not so much to recognize them, it's to pinpoint when they will burst.
I just don't understand why anyone would invest in a hot IPO for a company that hasn't even turned a profit yet and had a $389.6 million net loss in 2010! Can someone explain to me the allure of an investment like this?
"Don’t expect profits anytime soon:"
Based on their first quarter 2011 results, they are on a revenue run rate of 2.4 billion a year. It's a little surprising that they are not going to generate profits on 2.4 billion a year in revenue, despite the fact they employ around 7000 people and have other operational expenses.
One important item that hasn't received a lot of attention is Groupon's "Accrued Merchant Payable." If you'll indulge me, a longish thought experiment (yes, it relates to Groupon).
Imagine a sandwich shop that allowed customers to purchase future sandwiches--buy one today at a 50% discount, eat it sometime in the future. The sandwich shop would receive $3 for a sandwich for which it normally charges $6, and it would owe me a sandwich at a future date. Also assume the sandwich costs the shop $1.50 in direct costs (50% margins at a $3 price).
This proves to be a popular promotion with the shop's customers. The shop sells lots of $3 "sandwich rights," bringing in $3 in cash up front. It spends a good deal of that $3 in cash to pay ongoing expenses and to get the word out about its 50% off sandwich deal.
But then the growth of its "sandwich rights" business slows. Other sandwich shops offer a better deal--$2 for a $6 sandwich--and it begins to saturate the market of local lunch eaters, causing a slowdown in the sales of sandwich rights and the cash they've been paying the shop in advance.
Now the sandwich shop owes sandwiches to all of its rights holders, each of which costs $1.50 in cash expenses (to pay suppliers, employees, etc). However, instead of holding the cash it previously received for the sandwich futures, the shop has already spent it on marketing to other potential purchasers of sandwich futures. Clearly, if the shop doesn't have the money to pay $1.50 x # outstanding rights or can't get financing, it will go out of business. Because the shop was dependent on sales of sandwich rights to finance its growth, when the growth rate slowed, the money dried up. In essence, the shop borrowed from the future by sucking in cash today for discounts on tomorrow's sandwiches.
This is exactly what Groupon has done. Its operating cash flow includes "Accrued Merchant Payable" of nearly $291M (3/31/11). But its cash balance is about $208M (3/31/11). Because it collects cash up front from individuals and pays merchants over time (or, in its non-US operations, only when coupons are redeemed), Groupon is showered with customer cash before it must pay merchants. Roughly half of this cash eventually belongs to Groupon, while the other half is eventually owed to merchants (true, there is breakage, but if nobody redeems the coupon, that adds little value for the merchant, so significant breakage/non-redemption isn't necessarily in Groupon's long term interest).
In other words--and Groupon spells this out--if the growth rate in coupons sold to customers dives, Groupon could face a cash flow problem. It's not a ponzi/pyramid scheme exactly, but it is a highly risky financial practice to spend cash you will owe tomorrow on expenses you incur today. As long as the company grows and/or can sell shares to the public and increasing prices, it will do fine. Once the growth slows or access to capital dries up, it's vulnerable. Groupon may well outrun the cash demands it has piled up by going public. But it can't maintain these growth rates forever--remember those other sandwich shops selling similar products?--and will ultimately face the music.
Don't believe me? Here's a quote from their S1: "Our accrued merchant payable, which primarily consists of payment obligations to our merchants, has grown, both nominally and as a percentage of revenue, as our revenue has increased, particularly the revenue from our international segment....We use the operating cash flow provided by our merchant payment terms and revenue growth to fund our working capital needs. If we offer our merchants more favorable or accelerated payment terms or our revenue does not continue to grow in the future, our operating cash flow and results of operations could be adversely impacted and we may have to seek alternative financing to fund our working capital needs."
When and how can they eventually make some profit? If they aren't making a profit at expected ~2.5 B revenue, how would an additional infusion of 1 B make them profitable or let them grow more in the long run? Isn't that what companies get listed for?
Does the fact that they aren't turning a profit concern people that much? Didn't the Xbox division take years before profitting? I'm not a business guy so I'm genuinely asking this out of curiosity.
No net profit, but: "gross profit (revenue minus expenses, which was $280 million in 2010)"
So it sounds like they're just spending madly on acquisition and growth. Or am I missing the gross/net distinction here?
I worked as a sales manager at a group buying site which is a competitor of Groupon, and it amazed me how well off they were despite playing a domain you would expect to be monopolized by a goliath like Groupon. Just goes to show how much room for expansion there is in the niche.
Wouldn't it be typical of a growing company like Groupon to run negative because they keep investing all the profit into people and technology? Paying over 7000 people and their benefits probably takes a majority (e.g. 51% or more) of the revenue.
It does feel like 1998-2001 but it also feel more solid this time. Business with actual revenues rather than the hypothetical revenues of so many early dot com's.
I kind of hope we aren't' in a bubble but a rise in the economy. Either way head down and back to work. I missed the first bubble and related opportunities being distracted by school and the fun of school.
Not this time. I doubt that http://infostripe.com will IPO anytime ever but if there is enthusiasm and growth in the industry then I want to be in there somewhere in the wings fighting over the scraps.
Looks like they beat Zynga to it, there's only a handful to high-profile tech companies who are likely to go IPO soon, perhaps we could bet on who goes next + what their valuation will be at.
Maybe the next one isn't one of the big ones (Facebook, Zynga) but is instead something like Yelp or Pandora.
Edit: Didn't realize that Pandora just filed. Overshadowed, indeed.
Coincidental timing that they happens right after Google announces it's baking its clone into all future Android phones?
When is the actual ipo though? These articles never seem to mention that.
It's not a boom. It's not a boom. It's not a boom
Wow, Eric Lefkofsky owns a shit ton of that company, and already cashed out a decent chunk of change personally and through his various LLCs just recently. Never even heard of him before.
I dare someone to compare Foursquare with Groupon with OpenTable with Facebook, predict IPO sequence. Those are the constraints.
Living Social is next lol!
ticker symbol grpn
Andrew Mason's desire is for Groupon to be where you go when you think "I'm hungry or I'm bored"
If you're calling bubble and confused about how they're running at a loss don't miss this line:
"Participating Merchants: 56,781 in the first quarter of 2011, up from 212 in the second quarter of 2009"
That database of 56,781 merchants is GOLD.
The way their sale staff works is to create direct relationships, phone contact etc - that is not a cheap proposition.
In terms of growth potential there are 10x as many restaurants in the USA as Groupon's entire universe of merchants today.
If they continue to capture the consumer mind that they're the best in the world to answer those two questions, their valuation and growth potential is insane.
Refs:
http://answers.ask.com/Food_and_Drinks/Restaurants/how_many_...
http://www.geekosystem.com/groupon-im-hungry-im-bored/