Groupon IPO filing generates more jeers than cheers

Updated: Revelation of red ink in financials amplifies doubts about long-term prospects

While Groupon's IPO filing yesterday was certainly not unexpected, the largely negative reaction to it may surprise some, even if it fails to dampen enthusiasm for the offering.

Nicholas Carlson at Business Insider provides a concise rundown of the key facts and figures. The one that seems to be attracting the most public attention is that Groupon lost $413 million last year.

One analyst tells the The Wall Street Journal that he sees déjà vu all over again: "It's totally like 1999," said Sucharita Mulpuru, an online-commerce analyst for Forrester Research. "To lose this money? What's crazy about these numbers is that this should be a highly profitable model."

The headline on a post from Peter Kafka at All Things D asks "Where did Groupon's billion dollars go?" Answer: "The company's IPO filing spells that out: Almost all of it went right back out the door, to employees and early investors."

GigaOM's Mathew Ingram flags a Twitter debate:

Among those debating the value of Groupon as it filed for its hotly-awaited initial public offering - which could give it a market capitalization as high as $30 billion - were two startup entrepreneurs who took to Twitter on Thursday night. On the "Groupon is doomed to fail" side of the question was David Heinemeier Hansson, a partner at 37signals and creator of Ruby on Rails, and on the "give Groupon a chance" side of the debate was SimpleGeo co-founder Joe Stump. Who won? You will have to judge for yourself.

I'd give the decision to Hansson, although he clearly had the easier case to make.

A consistent theme among the critics was the expense side of Groupon's ledger, both in terms of supporting a 7,000-member workforce and spending boatloads to acquire customers. From a Bloomberg report:

The company recorded a $113.9 million net loss in the period, because of a $208 million marketing expense and $178.9 million in selling, general and administrative costs.

"What was scary to me was the extent of that marketing expense," said A.B. Mendez, a research analyst at GreenCrest Capital Management LLC in New York. "It's not yet clear what their longer-term margins will be or when they will be able to get to consistent profitability."

The Journals' Shira Ovide sees "shades of Google's 'don't be evil' manifesto" in Groupon CEO Andrew Mason's letter introducing the IPO. One gem from the letter: "As with any business in a 30-month-old industry, the path to success will have twists and turns, moments of brilliance and other moments of sheer stupidity."

That last part is bound to instill confidence in investors.

(Update: Not everyone is a naysayer. Fast Company's E.B. Boyd makes the case that Groupon could be the next Google, albeit with enough wiggle room to host a dance marathon.)

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