Groupon IPO

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 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.

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This entry was posted on Wednesday, July 13th, 2011 at 12:37 pm and is filed under News. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

21 Responses to “Groupon IPO”

  1. PostBacc says:

    I don’t think its any big secret that facebook et al are way over valued. The next big thing could pop up tomorrow and completely wipe out their business.

  2. David Case says:

    OK, so I’m not in the business world, but there are seriously no standard ways for accountants to report Revenue? And Groupon had to adjust their stated revenue in HALF? And you wonder why more people won’t invest in the market? Accountants truly are the slimiest of the slime. Their profession is nothing but smoke and mirrors anymore. Someone should publish the name of the accountant in charge of their statement and he should lose his license.

  3. Groupon had an unsustainable business model that pushed phenomenal
    growth, but into rampant competition with practically no barriers to
    entry. I also brought up suspicious accounting irregularities, an issue
    that I haven’t read about in the media for analyst reports. Long story
    short, any fundamental investor and many retail businesses who actually
    believe in the stated valuations and viability of Groupon and its extant
    business model have yet to be unplugged.

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    “…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”.

    Hilarious! Nice to see “Grumpy Old Accountants” with an honest approach – and a sense of humor!

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