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Groupon files for IPO
- veyron 15y agoticker symbol grpn
- deleted 15y ago[deleted]
- bryanh 15y agoAbsolutely wild. Revenue was almost as much in Q1 2011 as it was in all year in 2010 ($645m vs. $713m) with a 20,000% revenue growth since June 200. They are hoping to raise "close to $1 billion at a valuation of about $20 billion." [1] And they still aren't turning a profit. (~15% loss Q1 2011 and ~54% loss in 2010) [2] [1] http://online.wsj.com/article/SB10001424052702303745304576361631817311972.html#ixzz1O9D5o2Hb http://online.wsj.com/article/SB1000142405270230374530457636... [2] http://www.sec.gov/Archives/edgar/data/1490281/000104746911005613/a2203913zs-1.htm http://www.sec.gov/Archives/edgar/data/1490281/0001047469110...
- daeken 15y agoIncredibly impressive revenue, but really, $389.6MM loss on $713MM revenue? Perhaps I'm missing something, but I don't get why it's being hyped up so highly.
- whakojacko 15y agoPresumably because, like many a previous startup, revenue growth is fantastic. I agree with the HN consensus though-they have no real way of differentiating themselves from LivingSocial et all, so they will continue to have to pump lots of money into marketing ($208m in Q1!!), sales teams, etc and watch their margins go down over time.
- rorrr 15y agoThat's some pretty insane expenses. What are they wasting money on? EDIT: 1) Ad spend: $200+ million 2) 7000+ employees (at $40K average per employee, that's $280M/year)
- MatthewPhillips 15y agoSalary, to convince businesses to work with them on their extreme terms.
- daniel-cussen 15y agoSome startups (notably Amazon) use the money they raise to outrun competitors by subsidizing the product. Then, when they have the network tied up, they start making a large profit.
- roc 15y ago> "And they still aren't turning a profit." That part just boggles my mind. How can you go from revenue of 30M to 713M in a single year and not have wound up with any profit? Their revenue has grown so fast that I simply cannot imagine being able to greenlight enough spending [1] to get rid of it all in such a short amount of time. [1] intelligent spends that is; frivolous waste notwithstanding.
- hundredwatt 15y agoI assume there revenue numbers refer to the amount of money collected BEFORE paying merchants. Is that correct?
- bryanh 15y agoYes. I'm assuming that it reported as the cost of revenue (~58% in Q1 2011).
- jonknee 15y agoI'd imagine it has something to do with the 7,000+ employees and incredible amount of advertising spend.
- roc 15y agoThe employee growth is definitely a part of it. They went from, what was it? 120 in 2009 to 4000 in 2010? My boggling is more at the challenge of intelligently doing that spending than simply tabulating it. e.g. how do you intelligently hire 20 people a workday, every workday for an entire year, when you were a 100-person company?
- andrewcross 15y agoJust mind-boggling. In Canada at least the advertising budget is just monstrous. Their ads are everywhere!
- sbov 15y agoI'm not a pro at reading these, but it seems like you can see for yourself at: http://sec.gov/Archives/edgar/data/1490281/000104746911005613/a2203913zs-1.htm http://sec.gov/Archives/edgar/data/1490281/00010474691100561... That 713M "costed" 433M (seems to be that what goes to the companies advertising via groupon). Then theres 263M on "marketing", 233M on "selling, general, and administrative", and 203M on "acquisition related". The link has more detail on what each of these means.
- deleted 15y ago[deleted]
- lotusleaf1987 15y agoThis is always someone's reaction when someone calls bubble. I don't think it's justified you have to short the stock to be skeptical.
- jsm386 15y agoProspectus: http://www.sec.gov/Archives/edgar/data/1490281/000104746911005613/a2203913zs-1.htm http://www.sec.gov/Archives/edgar/data/1490281/0001047469110...
- jarek 15y agoThe risk factors section (starting on page 11) is particularly enlightening.
- dannylipsitz 15y agoPretty standard from what I've seen, actually.
- scottkduncan 15y agoI agree, and these two would concern me if I were considering investing: -Retain our existing merchants and have them offer additional deals through our marketplace; -React to challenges from existing and new competitors. Groupon could be facing the double-whammy of existing merchants in many markets having no incentive to offer follow-on deals while threats from the competition would erode margins. These are threats to existing revenue streams, not just to revenue growth. In my view, investors in Groupon must be betting that they can successfully translate their current traction into a more sustainable business model (i.e. Groupon Now). At this valuation, not a bet I would take.
- deleted 15y ago[deleted]
- nicpottier 15y agoCan we call it a bubble yet? Those of us who were around in the early 2000s recognize this game. Brand new ventures filing for IPOs based on 'amazing potential' and even more amazing valuations. This is all going to come crashing down soon. The question is whether it happens before or after Bitcoins. :)
- bryanh 15y agoDid the 2000 bubble come with revenue numbers like these recent IPOs?
- jonknee 15y agoHuge revenues are less impressive when coupled with huge losses.
- jsavimbi 15y ago> Did the 2000 bubble come with revenue numbers like these recent IPOs? Lol.
- jdp23 15y agoWhen Webvan when public in 1999, they were predicting by 2001 they'd be at $518.2 million revenue with a $302 million net loss, roughly where Groupon is now. So you're quite right: GroupOn's farther down the path of losing a lot of money. Read more: http://news.cnet.com/THE-DAY-AHEAD-Webvan-revs-IPO-as-questions-abound/2100-12_3-265725.html#ixzz1O9G5y4Zx http://news.cnet.com/THE-DAY-AHEAD-Webvan-revs-IPO-as-questi... http://news.cnet.com/THE-DAY-AHEAD-Webvan-revs-IPO-as-questions-abound/2100-12_3-265725.html http://news.cnet.com/THE-DAY-AHEAD-Webvan-revs-IPO-as-questi...
- megamark16 15y agoI just don't understand why anyone would invest in a hot IPO for a company that hasn't even turned a profit yet and had a $389.6 million net loss in 2010! Can someone explain to me the allure of an investment like this?
- svrocks 15y agobecause there are far more people who don't care about such trivialities as profitability or sustainability than those who do
- DLarsen 15y agoIt's alluring as a trader; less so as an investor. An IPO like this is going to have plenty of trade-able price movement.
- jdp23 15y agoIt's also very alluring to the the current investors and founders.
- staunch 15y agoThey appear to have cracked the nut on local advertising. Their business could end up bigger than Google's.
- jonknee 15y agoLosing a lot of money by emailing half-off coupons isn't going to end up bigger than Google.
- staunch 15y agoGoogle drives billions in revenue to online businesses. Groupon drives billions in revenue to local businesses. There are important differences, and Groupon may fail, but their fundamental market opportunity is easily as big as Google's.
- jdp23 15y agoFrom the article: 'Don’t expect profits anytime soon: Groupon hasn’t turned a net profit in any of its first three years of operations, including a net loss of $389.6 million in 2010. The company said it expects its “operating expenses will increase substantially in the foreseeable future ...“' Sounds very 1990s dot-com bubble to me ...
- rottencupcakes 15y agoNo, it actually sounds like their business model is so profitable in a single locale that they've been rapidly spending outside funding to accelerate their growth and stay ahead of the competition.
- achompas 15y agoVoting you up, up, up. Zipcar turns great profits in various locales, but they do not turn profit as a whole because they're investing heavily in their fleet. s/fleet/'sales team' and s/Zipcar/Groupon and you should see why Groupon isn't profitable yet.
- bcrescimanno 15y agoI'm sorry; but that's a completely ridiculous conclusion to draw from reading that they have been losing tremendous amounts of money. Staying ahead of competition means nothing if you don't have a strong plan to become a profitable business.
- olivercameron 15y agoWhy is that ridiculous? It's ridiculous to say that Groupon doesn't have a "strong" plan to become a profitable business. Of course they do. The market they are in is becoming intensely crowded, and since they are the current market leader, they need to spend a lot of money (yes, even if it results in losses) to stay in that position. If they stay can cement that position whilst their competition falls at the wayside, then they will become extremely profitable as the market leader.
- thomasgerbe 15y agoDoes the fact that they aren't turning a profit concern people that much? Didn't the Xbox division take years before profitting? I'm not a business guy so I'm genuinely asking this out of curiosity.
- daeken 15y agoThe Xbox wasn't in a market with zero brand loyalty, low barrier to entry, etc. It's an apples to aircraft carriers comparison, IMO. Groupon could be very profitable in the future, but so could the other 1000 companies in the space. It's a race to the bottom with little retaining their business.
- thomasgerbe 15y agoGood points, but as a business, I would consider GroupOn before those other 1000 companies because of their reach.
- daeken 15y agoThey have reach now, but others are gaining ground. I see LivingSocial as the biggest potential competitor right now, since they're an Amazon subsidiary -- that gives them a lot of leverage that Groupon doesn't have, e.g. giving away $20 Amazon gift cards for $10.
- DLarsen 15y agoFor one thing, when you buy an Xbox, and Microsoft has revenue for years. Customer retention is fairly easy. It's easy (and fun) to unsubscribe from Groupon.
- jacoblyles 15y agoThe fact that they aren't turning a profit and have an indefensible business model is concerning to me. There's no reason why a Groupon customer shouldn't use LivingSocial or one of the dozen other competitors.
- dsplittgerber 15y agoCue for dozens of Fortune, Newsweek et al articles proclaiming the new bubble. If everyone's so confident in their assertion, go short that stock. Groupon will grow like hell until there are finally no new deals to lure with left and the 'extreme couponing' lifestyle has been grinded to death (regular couponing will have a place like it always had). The problem with extreme valuations/bubbles is not so much to recognize them, it's to pinpoint when they will burst.
- deleted 15y ago[deleted]
- fleitz 15y agoYeah, when it bursts short it all the way to the bottom, hopefully panic selling ensues and you can pick it up a firesales prices at the bottom. Just saw citigroup at $40 today and am kicking myself for not having the cajones to pick it up at $2. Hindsight is 20/20 though and I know I liked it at $18 as well. Looks like I'm being downvoted, I guess the CEO of overture reads HN.
- jsm386 15y ago1 for 10 reverse split...
- fleitz 15y agoAhh ok, I was wondering how the heck it recovered. I'm glad I didn't pick it up then. I haven't followed the finance sector for about a year.
- bcrescimanno 15y agoWhy glad? a 10-for-1 reverse split means that the stock is still double it's $2 price point. Doubling your money in a year or two isn't bad at all.
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- matt_s 15y agoWouldn't it be typical of a growing company like Groupon to run negative because they keep investing all the profit into people and technology? Paying over 7000 people and their benefits probably takes a majority (e.g. 51% or more) of the revenue.
- aresant 15y agoAndrew Mason's desire is for Groupon to be where you go when you think "I'm hungry or I'm bored" If you're calling bubble and confused about how they're running at a loss don't miss this line: "Participating Merchants: 56,781 in the first quarter of 2011, up from 212 in the second quarter of 2009" That database of 56,781 merchants is GOLD. The way their sale staff works is to create direct relationships, phone contact etc - that is not a cheap proposition. In terms of growth potential there are 10x as many restaurants in the USA as Groupon's entire universe of merchants today. If they continue to capture the consumer mind that they're the best in the world to answer those two questions, their valuation and growth potential is insane. Refs: http://answers.ask.com/Food_and_Drinks/Restaurants/how_many_restaurants_are_in_america http://answers.ask.com/Food_and_Drinks/Restaurants/how_many_... http://www.geekosystem.com/groupon-im-hungry-im-bored/ http://www.geekosystem.com/groupon-im-hungry-im-bored/
- jarek 15y agoWhy is the growth of that database over 2 years so flat? What exactly will they do to actually make money from that database that they haven't done yet?
- btucker 15y agoThe value is less in the database and more in the relationships they've developed. We're not just talking rows in a table here. These are businesses which have bought into Groupon as a lead generator & who Groupon should be able to bring on board quickly to whatever future products develop.
- jarek 15y agoAnd with all these businesses they've been consistently losing money. Personal relationship management is not something that gets cheaper with scale, so size of potential market doesn't really help as far as I can see. I haven't seen any particular mention of amount of businesses retained as repeat customers, either. Future products? Maybe they'll sell lucky moose.
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- dr_ 15y ago"Don’t expect profits anytime soon:" Based on their first quarter 2011 results, they are on a revenue run rate of 2.4 billion a year. It's a little surprising that they are not going to generate profits on 2.4 billion a year in revenue, despite the fact they employ around 7000 people and have other operational expenses.
- iqster 15y agoI'm surprised by the loss they are running. Think how big their cut is. My understanding is that on a 50% off deal, they get half of the merchant's take! Granted their effective cut is lower since they provide some costly/valuable services .. e.g. they pay you right away while redemptions might happen over months. But still ... I wonder if merchants aren't just curious about the groupon model as opposed to groupon having "cracked the local nut". I guess we'll know in 2-3 years. If their revenue flattens or goes down vs if it keeps going up up and up. On a side note, I hope this makes Facebook file for their IPO already. For some reason, I feel the Facebook IPO will be a turning point of sorts in the current tech boom. Not sure why though.
- jonknee 15y ago> Granted their effective cut is lower since they provide some costly/valuable services .. e.g. they pay you right away while redemptions might happen over months. But still ... How is that at all costly? Groupon receives money up front--say $20 for a $40 coupon and then pays half to the merchant ($10 in this case). The customer is the one floating it--Groupon has theirs, the merchant has theirs.
- iqster 15y agoYou're right. The customer is the one doing the float. This margin seems high to me. And they still end up with a loss ... boggles the mind.
- jonknee 15y agoThey spend a ridiculous money on advertising and sales, so it's not too surprising too me. Their products are "free", but having a staff of 7,000+ means a tons of boots are on the ground to shake out those deals.
- danielharan 15y agoNo net profit, but: "gross profit (revenue minus expenses, which was $280 million in 2010)" So it sounds like they're just spending madly on acquisition and growth. Or am I missing the gross/net distinction here?
- kinofcain 15y ago$200million in ad spend + dozens of competitors spending just as much or more on ads = buy GOOG.
- paraschopra 15y agoWhen and how can they eventually make some profit? If they aren't making a profit at expected ~2.5 B revenue, how would an additional infusion of 1 B make them profitable or let them grow more in the long run? Isn't that what companies get listed for?
- deleted 15y ago[deleted]
- Goladus 15y agoGroupon wants to be THE site for deals and coupons. If they acquire enough end users, the cost of acquiring new partners will go down. The benefits will be common knowledge, businesses will approach them, and lots of salespeople will get laid off or at least growth there will slow dramatically. But end users won't use groupon without a good selection of partners. There are a variety of strategies for building up a solid base of partners, and it appears groupon's tactic is a large sales staff. It's a gamble and I have no idea whether they will pull it off. If they don't eventually lower the marginal cost of acquiring partners they will certainly fail, but there is possibility for success and aggressive growth is an understandable (if risky) approach.
- MatthewPhillips 15y agoCoincidental timing that they happens right after Google announces it's baking its clone into all future Android phones?
- suking 15y agoWow, Eric Lefkofsky owns a shit ton of that company, and already cashed out a decent chunk of change personally and through his various LLCs just recently. Never even heard of him before.
- pchristensen 15y agoHe's the secret big dog in Chicago tech investing.
- zackattack 15y agoObviously you're not from Chicago =)
- jcampbell1 15y agoI know there are people scraping Groupon deals and sales figures and estimating revenues. Does anyone have the name of these sites? It seems like a hell of a opportunity to sell $10k research reports based on public information to wall street traders.
- Apocryphon 15y agoLooks like they beat Zynga to it, there's only a handful to high-profile tech companies who are likely to go IPO soon, perhaps we could bet on who goes next + what their valuation will be at. Maybe the next one isn't one of the big ones (Facebook, Zynga) but is instead something like Yelp or Pandora. Edit: Didn't realize that Pandora just filed. Overshadowed, indeed.
- nostrademons 15y agoPandora's already filed for an IPO: http://tech.fortune.cnn.com/2011/03/01/not-pandoras-box-why-the-music-companys-ipo-isnt-the-sign-of-a-bubble/ http://tech.fortune.cnn.com/2011/03/01/not-pandoras-box-why-...
- alain94040 15y agoAm I wrong, or any idiot can spend 1 billion dollars to make 700M? It's very scary to me that they scaled and failed to prove they can profit, before going IPO. I have no issue with that tactic as a private company, but you shouldn't go public until you can prove profitability. Otherwise, the bubble word is truly deserved.
- happyfeet 15y agoAbosolutely right on. If they can't show profit at this scale and leverage as a private enterprise, it is a big question mark as to when & how would they turn up a profit and at what margin. It looks like investors cashing out rather than sticking on to provide the business model and profitability.
- hxf148 15y agoIt does feel like 1998-2001 but it also feel more solid this time. Business with actual revenues rather than the hypothetical revenues of so many early dot com's. I kind of hope we aren't' in a bubble but a rise in the economy. Either way head down and back to work. I missed the first bubble and related opportunities being distracted by school and the fun of school. Not this time. I doubt that http://infostripe.com http://infostripe.com will IPO anytime ever but if there is enthusiasm and growth in the industry then I want to be in there somewhere in the wings fighting over the scraps.
- vessenes 15y agoMy read on this, especially given the extreme flexibility series G investors showed in cashing out founders, is that when Groupon is up and running in a locale, it makes a whole shitload of money. I also would anticipate from reading the expansion numbers and having a little bit of business experience myself that Groupon grew literally as fast as it possibly could in the last few years; there was no way for them to successfully move any faster, no matter how much cash they were given. I'm guessing you'll see some gyrations as they continue to try and solidify their global lead, then slow move to profitability, then one day, (if margins hold up) BAM. Major Net Income. Right now the market clearly is going to reward a company who can get this done successfully in as broad a portion of the world as possible; if they can demonstrate that existing locales are profitable after a certain period of time, they will have happy shareholders as well. It's a landgrab, and Amazon is a good comparison.
- freshfunk 15y agoPerhaps the other useful part of the Amazon analogy is that I believe that GroupOn will slowly be eaten alive by competitors unless they bring some real business and/or tech innovation. Last I saw, LivingSocial's trajectory was steeper than GroupOns. I think we can expect LivingSocial to go public soon so they can add some cash to their war chest.
- vessenes 15y agoThis would be great. I'd gladly be in a situation where I could split investment dollars between two large growing competitors in a market situation like this.
- hyperbovine 15y ago> it makes a whole shitload of money. Sounds like they /gross/ a shitload; but they need 7,000 salaried employees to do it, and they're not even in that many places yet. Groupon is a brilliant idea, but it's not the typical zero-overhead startup that HN people are often involved in. Just because you are bringing $20 billion in the door every year doesn't mean you are making f.u. money. I'm not knocking it as in investment -- I really have no expertise in that area -- but the numbers appear less eye-popping when you look at it as sales/marketing outfit that happens to do all of its business online.
- deleted 15y ago[deleted]
- bhangi 15y agoFrom what I could make out of the prospectus, the revenue number is the sum of the face value of all coupons sold. Since Groupon has to pay the merchants a predetermined percentage of the face value, I'm having a tough time understanding why the entire face value should be considered as revenue. To take an analogy, this would be like Visa claiming the total value of transactions as revenue instead of the fees it charges the merchants for said transactions. Am I missing something?
- rganguly 15y agoYou're paying your money to Groupon, then they send a portion of the dollars to the merchant. You can assume that basically all of the cost of revenue line item is representative of the portion they send to the merchants.
- hncommenter13 15y agoOne important item that hasn't received a lot of attention is Groupon's "Accrued Merchant Payable." If you'll indulge me, a longish thought experiment (yes, it relates to Groupon). Imagine a sandwich shop that allowed customers to purchase future sandwiches--buy one today at a 50% discount, eat it sometime in the future. The sandwich shop would receive $3 for a sandwich for which it normally charges $6, and it would owe me a sandwich at a future date. Also assume the sandwich costs the shop $1.50 in direct costs (50% margins at a $3 price). This proves to be a popular promotion with the shop's customers. The shop sells lots of $3 "sandwich rights," bringing in $3 in cash up front. It spends a good deal of that $3 in cash to pay ongoing expenses and to get the word out about its 50% off sandwich deal. But then the growth of its "sandwich rights" business slows. Other sandwich shops offer a better deal--$2 for a $6 sandwich--and it begins to saturate the market of local lunch eaters, causing a slowdown in the sales of sandwich rights and the cash they've been paying the shop in advance. Now the sandwich shop owes sandwiches to all of its rights holders, each of which costs $1.50 in cash expenses (to pay suppliers, employees, etc). However, instead of holding the cash it previously received for the sandwich futures, the shop has already spent it on marketing to other potential purchasers of sandwich futures. Clearly, if the shop doesn't have the money to pay $1.50 x # outstanding rights or can't get financing, it will go out of business. Because the shop was dependent on sales of sandwich rights to finance its growth, when the growth rate slowed, the money dried up. In essence, the shop borrowed from the future by sucking in cash today for discounts on tomorrow's sandwiches. This is exactly what Groupon has done. Its operating cash flow includes "Accrued Merchant Payable" of nearly $291M (3/31/11). But its cash balance is about $208M (3/31/11). Because it collects cash up front from individuals and pays merchants over time (or, in its non-US operations, only when coupons are redeemed), Groupon is showered with customer cash before it must pay merchants. Roughly half of this cash eventually belongs to Groupon, while the other half is eventually owed to merchants (true, there is breakage, but if nobody redeems the coupon, that adds little value for the merchant, so significant breakage/non-redemption isn't necessarily in Groupon's long term interest). In other words--and Groupon spells this out--if the growth rate in coupons sold to customers dives, Groupon could face a cash flow problem. It's not a ponzi/pyramid scheme exactly, but it is a highly risky financial practice to spend cash you will owe tomorrow on expenses you incur today. As long as the company grows and/or can sell shares to the public and increasing prices, it will do fine. Once the growth slows or access to capital dries up, it's vulnerable. Groupon may well outrun the cash demands it has piled up by going public. But it can't maintain these growth rates forever--remember those other sandwich shops selling similar products?--and will ultimately face the music. Don't believe me? Here's a quote from their S1: "Our accrued merchant payable, which primarily consists of payment obligations to our merchants, has grown, both nominally and as a percentage of revenue, as our revenue has increased, particularly the revenue from our international segment....We use the operating cash flow provided by our merchant payment terms and revenue growth to fund our working capital needs. If we offer our merchants more favorable or accelerated payment terms or our revenue does not continue to grow in the future, our operating cash flow and results of operations could be adversely impacted and we may have to seek alternative financing to fund our working capital needs."
- zmmmmm 15y agoIf nothing else the timing of this seems suspect to me. The Linked In IPO has investors who missed out champing at the bit for something else. I think Groupon knows their current business model is unsustainable and have picked this moment precisely because the market is particularly irrational right now. (Note: I'm not saying there is a bubble in general, just that the Linked In IPO has created a unique opportunity for them to go public with less scrutiny than would otherwise be the case.)
- Duff 15y agoI think Groupon is a suspect company to begin with. It's a great idea, but most of the last few rounds of funding have gone to pay off the early investors. http://allthingsd.com/20110602/where-did-groupons-billion-dollars-go/ http://allthingsd.com/20110602/where-did-groupons-billion-do... They raised nearly a BILLION dollars, and spent 80% of it on paying off the insiders. Not a good sign.
- naeem 15y agoI worked as a sales manager at a group buying site which is a competitor of Groupon, and it amazed me how well off they were despite playing a domain you would expect to be monopolized by a goliath like Groupon. Just goes to show how much room for expansion there is in the niche.
- hunterp 15y agoI dare someone to compare Foursquare with Groupon with OpenTable with Facebook, predict IPO sequence. Those are the constraints.
- tocomment 15y agoWhen is the actual ipo though? These articles never seem to mention that.
- oceanician 15y agoIt's not a boom. It's not a boom. It's not a boom
- benlang 15y agoLiving Social is next lol!