4 ms·

$3B is an outlandish valuation, especially considering they were valued at less than half that ($1.3B) in a round a mere 6 months ago. Sure the 50% revenue spli

by trotsky 16y ago

$3B is an outlandish valuation, especially considering they were valued at less than half that ($1.3B) in a round a mere 6 months ago. Sure the 50% revenue split makes it look like a cash cow on paper, but that kind of division seems unsustainable given how few merchants are willing to repeat groupon promotions or report that they were profitable endeavors. If groupon really does take cash in at that kind of pre-money level it will really only mean that interest rates are so low and available investment money is so high that we're officially in another bubble.

falsestprophet 16y ago
$3B is an outlandish valuation What leads so many people to imagine they can identify outlandish mistakes in a company's valuation without any knowledge of the company's financials?
- michaelchisari 16y ago
  Given the history of economic valuation in this industry, I think being critical is more than justified.
  - chaddera 16y ago
    "Given the history of economic valuation in this industry, I think being critical is more than justified." Truthfully, being critical without knowing anything about Groupon's balance sheet is even more outlandish.
    - michaelchisari 16y ago
      It was more a general statement about the industry, so I would like to address that point: Given that none of us here are privy to most of these company's balance sheets, and as pointed out before, given our industry's history of overvaluation, I think that being critical is a much more prudent response than optimism or blind trust.
  - noneedtosay 16y ago
    You think Facebook is overvalued, with no understanding of its financials or strategy. You think Groupon is overvalued, with no understanding of its financials or strategy. Do tell, is there anything out there you find undervalued, without an understanding of its financials or strategy? It's so easy to be a cynic and appear brilliant.
    - deleted 16y ago
      [deleted]
    - michaelchisari 16y ago
      I'd be interested to hear your thoughts on why Facebook is not overvalued, since you have as much of an understanding of it's financials and strategy as I do (assuming you don't have internal information, of course). Facebook has stated that it's profits are in the "tens of millions" annually. Assuming, for ease of math, that translates to around $33 million a year, that puts their P/E at around 1000. Their strategy seems to be a combination of ad space sales, and the sales of Facebook credits, although they've stated that the majority of their revenue comes from advertising. I'm very skeptical that advertising is the kind of business model that can meet that level of speculation. Do you feel this is an incorrect set of conclusions, given the information culled from Facebook's representatives? Or do you feel that I've overlooked information about it's strategy or revenues? If you have information that conflicts, or adds to this, I'd be very interested, as I'm sure many people here would be.
      - flipbrad 16y ago
        oh but michael, you're forgetting: facebook has all those eyeballs!
      - fbailey 16y ago
        http://www.google.com http://www.google.com
  - wheels 16y ago
    NEA and Accel are both top-shelf VCs and have been the primary investors in Groupon thus far. They've both raised a number of funds and their ability to continue doing so most likely indicates that they have seen their investments appreciate and returned gains to their limited partners, and as a result, by definition, are not overvaluing their aggregate assets. The latest entrant to their set of investors is Digital Sky, who at one point seemed to be naively inflating startup valuations when they took slices of Facebook and Zynga, but in retrospect seem nigh on clairvoyant: they were prescient enough to grab decent chunks of two firms that are likely IPO bound, in a time where tech IPOs are freakishly rare. So what we're talking about is successful, proven experts at figuring out what companies are worth on the open market, and a random jab is supposed to invalidate that?
    - trotsky 16y ago
      Accel Partners is obviously a top shelf group but they are still in the venture capital game. The industry in general relies on a minority of investments paying well enough to cover a majority of investments that never recoup. Since a decision to invest $10M into a company that later fails (or fails to recoup) qualifies as overvaluing an asset, Accel must be overvaluing some of their assets. In fact, on industry average, VC firms are in the business of overvaluing individual assets a majority of the time.
      - wheels 16y ago
        A critical word in what I said was aggregate assets, and a critical word in yours was outlandish. Sure, the median venture investment will be overvalued, but for it to be outlandishly overvalued would imply that it's unreasonable even within its asset class. That's a strong claim to make with next to zero data given that people with a wealth of data and a track record of making sense of that type of data obviously disagree.
- trotsky 16y ago
  Obviously I'm just expressing my personal opinion. If you ever trade public equities you're betting your money that you can value a company more effectively than the analysts and institutional investors that hold any opposing outlook. People gut check valuations of all sorts of things all the time and are often correct. You don't need to manage a REIT or be a builder to know the odds are that 2br split level isn't worth $20M. Watching from the inside while a company takes three rounds totaling $260M, values at a billion plus, and then gets sold for $10M while the furniture is being liquidated, all in the space of a few years tends to make you skeptical of tech VC driven valuations.
- _delirium 16y ago
  It's not necessarily the case that the professionals actually think that's the correct valuation. They have other constraints, one being that they often have to fully invest their capital, which doesn't always grow proportionally to the rate at which they find promising deals. Sometimes they have to make questionable bets because they're the best bets available. So it's more of a relative decision rather than absolute valuation: of all the options I have to choose between right now, with "none of the above" not being an option, which one is best? Warren Buffet writes a bit on this, that once your investable capital grows past a certain point, you're forced to transition away from a value-investing mode and towards more of a "managing large sums of money I have to find places to park" mode, where you no longer have the luxury of passing on 100 overvalued opportunities before pouncing on one undervalued one.
- jscore 16y ago
  "entrusted with the management of hundreds of millions of dollars and who have access to the company's financials?" Some "professionals" have conflicts of interest.
- hyperbovine 16y ago
  Oh hi, you must be new here. Welcome to the Internet!
chaddera 16y ago
"$3B is an outlandish valuation, especially considering they were valued at less than half that ($1.3B) in a round a mere 6 months ago." Sorry, that doesn't mean anything. Companies' valuations can change drastically based on new numbers on their income statements. If you're going criticize the company, at least look at its earnings multiple.
- prodigal_erik 16y ago
  Do they have a sustainable competitive advantage? Their assets seem to be a large sales force, an unsurprising web presence, and a user base who could easily subscribe to several rivals simultaneously. It should be possible to build a viable competitor for far less than $2.5M per employee per year.
jambo 16y ago
Speaking of interest rates, I'm not sure how Groupon's model works, but it's possible that their payment terms let them generate interest income on all of the revenue. If they continually generate 30+ days of float, that's potentially interesting, especially if rates go up; although, I doubt it would register in this valuation.
Maro 16y ago
I remember when Facebook's valuation was supposed to be $15B, and I thought that's outlandish. Right now it's supposed to be $33B, and new employees are supposedly told that it could go as high as $100B when they IPO. So, careful.
- bhickey 16y ago
  To be fair, I think I'd rather control Cambodia (2009 GDP $10B) than Facebook. Jersey and New Caldonia would be nice as well.
netcan 16y ago
Its interesting that the 50% revenue split has been getting takers so far.

by trotsky 16y ago

falsestprophet 16y ago

$3B is an outlandish valuation What leads so many people to imagine they can identify outlandish mistakes in a company's valuation without any knowledge of the company's financials?

michaelchisari 16y ago
Given the history of economic valuation in this industry, I think being critical is more than justified.
- chaddera 16y ago
  "Given the history of economic valuation in this industry, I think being critical is more than justified." Truthfully, being critical without knowing anything about Groupon's balance sheet is even more outlandish.
  - michaelchisari 16y ago
    It was more a general statement about the industry, so I would like to address that point: Given that none of us here are privy to most of these company's balance sheets, and as pointed out before, given our industry's history of overvaluation, I think that being critical is a much more prudent response than optimism or blind trust.
- noneedtosay 16y ago
  You think Facebook is overvalued, with no understanding of its financials or strategy. You think Groupon is overvalued, with no understanding of its financials or strategy. Do tell, is there anything out there you find undervalued, without an understanding of its financials or strategy? It's so easy to be a cynic and appear brilliant.
  - deleted 16y ago
    [deleted]
  - michaelchisari 16y ago
    I'd be interested to hear your thoughts on why Facebook is not overvalued, since you have as much of an understanding of it's financials and strategy as I do (assuming you don't have internal information, of course). Facebook has stated that it's profits are in the "tens of millions" annually. Assuming, for ease of math, that translates to around $33 million a year, that puts their P/E at around 1000. Their strategy seems to be a combination of ad space sales, and the sales of Facebook credits, although they've stated that the majority of their revenue comes from advertising. I'm very skeptical that advertising is the kind of business model that can meet that level of speculation. Do you feel this is an incorrect set of conclusions, given the information culled from Facebook's representatives? Or do you feel that I've overlooked information about it's strategy or revenues? If you have information that conflicts, or adds to this, I'd be very interested, as I'm sure many people here would be.
    - flipbrad 16y ago
      oh but michael, you're forgetting: facebook has all those eyeballs!
    - fbailey 16y ago
      http://www.google.com http://www.google.com
- wheels 16y ago
  NEA and Accel are both top-shelf VCs and have been the primary investors in Groupon thus far. They've both raised a number of funds and their ability to continue doing so most likely indicates that they have seen their investments appreciate and returned gains to their limited partners, and as a result, by definition, are not overvaluing their aggregate assets. The latest entrant to their set of investors is Digital Sky, who at one point seemed to be naively inflating startup valuations when they took slices of Facebook and Zynga, but in retrospect seem nigh on clairvoyant: they were prescient enough to grab decent chunks of two firms that are likely IPO bound, in a time where tech IPOs are freakishly rare. So what we're talking about is successful, proven experts at figuring out what companies are worth on the open market, and a random jab is supposed to invalidate that?
  - trotsky 16y ago
    Accel Partners is obviously a top shelf group but they are still in the venture capital game. The industry in general relies on a minority of investments paying well enough to cover a majority of investments that never recoup. Since a decision to invest $10M into a company that later fails (or fails to recoup) qualifies as overvaluing an asset, Accel must be overvaluing some of their assets. In fact, on industry average, VC firms are in the business of overvaluing individual assets a majority of the time.
    - wheels 16y ago
      A critical word in what I said was aggregate assets, and a critical word in yours was outlandish. Sure, the median venture investment will be overvalued, but for it to be outlandishly overvalued would imply that it's unreasonable even within its asset class. That's a strong claim to make with next to zero data given that people with a wealth of data and a track record of making sense of that type of data obviously disagree.
trotsky 16y ago
Obviously I'm just expressing my personal opinion. If you ever trade public equities you're betting your money that you can value a company more effectively than the analysts and institutional investors that hold any opposing outlook. People gut check valuations of all sorts of things all the time and are often correct. You don't need to manage a REIT or be a builder to know the odds are that 2br split level isn't worth $20M. Watching from the inside while a company takes three rounds totaling $260M, values at a billion plus, and then gets sold for $10M while the furniture is being liquidated, all in the space of a few years tends to make you skeptical of tech VC driven valuations.
_delirium 16y ago
It's not necessarily the case that the professionals actually think that's the correct valuation. They have other constraints, one being that they often have to fully invest their capital, which doesn't always grow proportionally to the rate at which they find promising deals. Sometimes they have to make questionable bets because they're the best bets available. So it's more of a relative decision rather than absolute valuation: of all the options I have to choose between right now, with "none of the above" not being an option, which one is best? Warren Buffet writes a bit on this, that once your investable capital grows past a certain point, you're forced to transition away from a value-investing mode and towards more of a "managing large sums of money I have to find places to park" mode, where you no longer have the luxury of passing on 100 overvalued opportunities before pouncing on one undervalued one.
jscore 16y ago
"entrusted with the management of hundreds of millions of dollars and who have access to the company's financials?" Some "professionals" have conflicts of interest.
hyperbovine 16y ago
Oh hi, you must be new here. Welcome to the Internet!

chaddera 16y ago

"$3B is an outlandish valuation, especially considering they were valued at less than half that ($1.3B) in a round a mere 6 months ago." Sorry, that doesn't mean anything. Companies' valuations can change drastically based on new numbers on their income statements. If you're going criticize the company, at least look at its earnings multiple.

prodigal_erik 16y ago
Do they have a sustainable competitive advantage? Their assets seem to be a large sales force, an unsurprising web presence, and a user base who could easily subscribe to several rivals simultaneously. It should be possible to build a viable competitor for far less than $2.5M per employee per year.

jambo 16y ago

Speaking of interest rates, I'm not sure how Groupon's model works, but it's possible that their payment terms let them generate interest income on all of the revenue. If they continually generate 30+ days of float, that's potentially interesting, especially if rates go up; although, I doubt it would register in this valuation.

Maro 16y ago

I remember when Facebook's valuation was supposed to be $15B, and I thought that's outlandish. Right now it's supposed to be $33B, and new employees are supposedly told that it could go as high as $100B when they IPO. So, careful.

bhickey 16y ago
To be fair, I think I'd rather control Cambodia (2009 GDP $10B) than Facebook. Jersey and New Caldonia would be nice as well.

netcan 16y ago

Its interesting that the 50% revenue split has been getting takers so far.