This week, GroupOn filed for a $750 million initial public offering. Looking at the data, it seems it either shouldn’t have or the kind of economics that got the dotcoms in trouble are back.
Rumored numbers were off
I, like many other people writing about internet companies, have been guilty of spreading the rumor that Groupon 2010 revenue were nearing $2 billion. The reality is much starker as the company has generated revenues of $713 million for that year with net losses of over 456 million for that year.
According the S1, they also had 50.6 million users at the end of 2010, which was higher than the 30 million that had been widely reported. So if I were to revise the chart I had created in late 2010 based on the rumored numbers, it would look like this:
|2010 Revenue||$713 million|
|2010 Profit (loss)||($413 million)|
|2010 User base||50.6 million|
|Average revenue per user||$14.09|
|Average profit (loss) per user||($8.16)|
My first reaction, when looking at this is that we are dealing with a company with massive losses here and that’s a first red flag. Many have compared those losses to Amazon, a company that went public even though it had big losses so I decided to go all the way back to 1997 and pick up the Amazon S1 to see how it compared.
GroupOn vs. Amazon
|Amount raised||$750 million||$55 million|
|Valuation||$20 billion||$438 million|
|Preceding year revenue||$713 million||$15.7 million|
|Preceding year profit (loss)||($413 million)||($5.7 million)|
|Preceding year user base||50.6 million||35 million|
|Average revenue per user||$14.09||$0.45|
|Average profit (loss) per user||($8.16)||($0.16)|
|Valuation per user||$395||$12.51|
Based on those numbers, the first thing that seems out of whack to me is the level of risk one is asked to take based on the potential revenue per user. Maybe a $200-$500 million valuation would make more sense for GroupOn at this stage, if we truly want to compare it to Amazon back then.
The other thing is that the valuation per user seems extremely high. In a world where Amazon gets $189 per user, we are led to believe that Groupon could do more than twice that number, making it almost as successful as Apple in terms of monetizing users. Color me cynical but I have serious doubt that’s achievable on the current business model.
GroupOn vs. LinkedIn
A couple of weeks ago, I ran comparisons between LinkedIn IPO and a few other tech companies that went public. Let’s superimpose the groupon numbers and the LinkedIn numbers to see how different those offerings are:
|2010 Revenue||$713 million||$243|
|2010 Profit (Loss)||($413 million)||$15.8 million|
|2010 users||50.6 million||90 million|
|2010 Average Revenue per user||$14.09||$2.7|
|2010 Average profit (loss) per user||($8.16)||$0.17|
The other big thing is that revenues per users are actually on the low side compared to other technology companies. For example, Groupon makes less revenue than Ebay ($39) or Google ($24), two companies that have demonstrated long-running businesses. Furthermore, the company’s losses are staggering, even for a company in growth mode.
I’ve long warned people about tossing the bubble number around. In fact, I was probably one of the biggest debunker of bubble thinking but, if a company like GroupOn is allowed to go out at the valuation it has set forth, I am afraid that we will be making the same mistakes we have made over a decade ago. I am sorry to disappoint GroupOn shareholders but, in this case, I believe that to let such a company go public would be to endanger the whole startup ecosystem that has been flourishing over the past years.