The company will be offering there shares for $750 million which makes it appear this is their market capitalization. However all of there preferred shares will instantly convert into Class A shares meaning the shares outstanding will balloon by 7 times. Giving Groupon a closer IPO price of $5.2 billion.
The company has a host of competitors who have copied their simple business model. See some of Groupon imitators here. The company also has an extremely poor financial condition. With a current ratio of 0.5. The company also lost $150 million in Q1. The IPO for the company is likely a necessity given how much money it is losing. Few companies can survive losing this amount.
Gropon uses a degenerate Non-GAAP earnings which reverses there $420 million loss in 2010 into a $60 million dollar gain. In order to get this number, online marketing of $241 million is reversed, stock based compensation is reversed for $36 million and acquisition related charges of $200 million are reversed.
We agree with the reversal of the acquisition related charges but it is ridiculous that a company which generates most of its traffic to its site from ads on other sites, says that this expense is not real. Stock based compensation is also a very real expense. If there was 1 shareholder of a stock and 1 share was given away for free. I would love for the second shareholder to explain to the first that his value is the same. But this is done everyday on Wall Street. Almost every tech firm adds back stock based compensation into earnings.
Groupon recorded $640 million in revenue Q1 2011 up 1300% from the year before. However they also went from a profit of $8 million to a loss of $146 million.
We believe its likely that Groupon will have more secondary offerings after this initial IPO given its extremely weak financial position. Possibly one of the weakest ever in a tech IPO. Most tech companies are valued on absurd metrics such as 20 to 30 times revenue but these companies are usually profitable even though it is usually in small amounts. However never has an IPO ever been seen with a company losing so much money.
The company also has a dual class share structure. It is our belief to never invest in dual class shares regardless of their economic benefits. Therefore we personally would not invest Groupon no matter the price. However the stock market itself often does not price in a dual-class share discount. Though we believe there should be. If two people owned a business and person A gets to decide everything than it's hard to say person B has the same value in his shares.It will be interesting to see the movement of its share price when it finally trades. For the latest updates PRESS CTR + D or visit Stock Market news Today
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