In the first few months of this year, I did show excitement for quite a few soon to be public companies. Some did turn private but most of the anticipated ones did not happen. Waiting for some has been frustrating (Facebook!!!) but I’m glad to get a chance to get more information on others (Groupon, Zynga, etc). We can all certainly understand why now is not the perfect time to go public but for some companies… that waiting time might end up much lower valuations. Today, I’d like to give some impressions on Groupon, the giant daily deal company and why its IPO is being delayed over and over.
-Context: No doubt about it, a world where at any point in time, Greece, Europe, US and international banks and perhaps much more could all blow up is ont the most friendly IPO environment. No one wants to go public in the middle of a recession or a market crash, it would mean selling out at the low point and looking like the loser. That being said, if this context is going to remain for several years, I’m not sure how companies like Groupon will be able to decide on timing.
-Founders Getting Out: I’ve never been a huge fan of trading on the basis of executives buying or selling stock. That being said, I think many including myself were surprised to see that most of the money raised in recent months by Groupon was not to fund growth and operations but rather to buy out some of the current founders and early employees. I can understanding them wanting the money but it does still raise questions: Do they think valuations have peaked? Are things as good as they might seem? Are they truly dedicated to Groupon in the long term?
-Accounting: Perhaps even more worrying is the fact that Groupon has had to revise its financial statements in a few different ways. First of all, Groupon was expensing its marketing over several years on the basis that the cost of acquiring new clients would pay off over that many years. That is a strange way of looking at it and they were forced to amend. Also, they were initially reporting the whole value of coupons sold as revenues instead of the portion that truly belongs to Groupon which was inflating revenues. They did eventually amend but it certainly raises a few questions. If so many obvious things were attempted in order to help Groupon look more profitable and as if it had more revenues than it truly did, what else was done? What kind of tactics are being used that could be difficult to find for most of us?
-Errors: As if things were not bad enough, Groupon managers have made a few errors. For example, I’ve heard no one think positively about Groupon’s Super Bowl ads, how much they spend and how unpopular it turned out to be. That could probably be attributed to a minor mistake by marketing. However, for Andrew Mason to break the “silence period” discussing the firms financials when he was not legally free to do so was a big mistake. To be fair, Google founders had made that same mistake over a decade ago. That does not make it any better though.
-Competition And Margins: One of Groupon’s big problems is that competitors can set shop with not much more than a couple of individuals and a couple thousand dollars. That has sparked competition from local players, niche players (such as Travelzoo for travel deals), but also huge companies like Google, Facebook and Yelp but also other international players like Amazon backed LivingSocial. Facebook and Yelp seem to be exiting the space because of the margins being so small and competition being so intense. That is certainly not a great sign for Groupon and might explain why the growth story is slowing down years earlier than expected.
Does This Mean Groupon Is Junk?
Of course not. Groupon refused a $6 billion offer from Google about 2 years ago and while it may not go public at its once discussed $20 billion valuation, it is still likely to go for an expensive price. Will I be a buyer? I would say unlikely at this point but like everything else in life, if the price is right:)