July 13th, 2011 - 21 Comments
“Facebook, Groupon and Zynga are creating an investor frenzy around high-growth Internet companies while commanding sky-rocketing valuations. But are the valuations for these pre-IPO companies justified?” asks TheStreet.com. At least in the case of Groupon, Smeal’s Ed Ketz says, “No.”
On their blog, Grumpy Old Accountants, Ketz and Anthony H. Catanach Jr., associate professor of business at Villanova University, take a look Groupon’s S-1 filing with the Securities and Exchange Commission and conclude that they would rather buy lottery tickets than participate in its IPO:
Let’s begin with the income statement. Sales exploded from $30 (all account balances are in millions of dollars) in 2009 to $713 in 2010, an almost unheard of 23-fold growth. Unfortunately, expenses had an even greater astronomical growth, going from $37 in 2009 to $1,170 in 2010 for net losses of $(7) and $(456), respectively. The biggest expense accretion resides in acquisition-related expenses of $203; however, even if we remove this item from consideration, expenses are still $967 and they still swamp revenues. Persistent earnings are clearly negative and serve as one huge red flag.
The balance sheet also displays repugnance. Current assets are $174 while current liabilities equal $370. Any business sophomore knows that isn’t good. Total assets equal $382 and total liabilities $372, so total stockholders’ equity is a mere $10. Having only 3% equity isn’t good for banks, much less anybody else; the financial leverage risk is huge.
There’s more, too. Read on on Grumpy Old Accountants.News. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.