The bubble is (group)on

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:

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

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:

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.

Bub­ble numbers

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.