I though that they were going to successfully IPO around the previous valuations.
It's just been a supremely turbulent/volatile this summer and eyes have shifted to Tech IPOs commonly during downslopes. People have been considering if Tech IPOs are over-valued - not forgetting what happened just a couple years ago.
My blog on the credibility of Groupon's IPO Valuation maybe wasn't so spot on. Granted, I voiced my thoughts on the IPO's validity much before the coaster ride investors have been on this summer. Blog from (6/18/11): http://jacobirw.wordpress.com/2011/06/18/groupon-pre-ipo-val...
Despite the consensus on Groupon's overall unworthiness at this time, with new management (or a pivot under current) the Groupon IPO could be right back in the positive light of investors and the tech community alike. It must be remembered that they are now a resource for thousands upon thousands of business owners that have filled Groupon's pockets with over a billion in cash.*
Revenue is also cash - before expenses [they are collecting this amount]. I'm not suggesting that Groupon's 'operations activities' aren't responsible for pulling/keeping them in the red.
However, investors like Warren Buffet look for high-earning and unprofitable companies quite frequently to get involved with - companies like Groupon. Reason being, with some direction by a strong [/new] board of directors (majority shareholders; highly-successful business leaders; wiki: 'See's Candies', 'Washington Post', 'Berkshire Hathaway'), a company can re-divert [i.e. 'pivot'] resources, slash out unprofitbale segments, etc., and successfully revive a titan.
Response note: I garnered my figure of $1.6 billion based on a Dartmouth article here: http://www.tuck.dartmouth.edu/cds-uploads/case-studies/pdf/G... -- see bottom of page two, second-to-last paragraph in the section titled, "The Fastest-Growing Business in History."
That mentions revenues only, and you can't use that to translate directly to cash, they're not the same thing, you can't use those terms interchangeably.
If a company has 100K in revenues and 50K in expenses per month after one month they'll have 50K in cash, to give a very limited example.
So you have to take the revenues and reduce them by the burn rate to get an idea of how big groupons war chest really is.
According to groupons own filings they've got 208 million in the bank so they've spent a good 1.4 billion of that money they took in.
Of course 200+ million is still not exactly pocket change.
I don't quite follow the Warren Buffet link, his only comment on groupon as far as I know is that he said he'd read their IPO filing papers but that was about it.
"Revenue is calculated by multiplying the price at which goods or services are sold by the number of units or amount sold." - Investopedia
You may be thinking of 'marginal revenue' perhaps. I am talking to both of you.
Tell me to read an accounting book - sure, if I have time after I am done buying a basket of financial sector out-of-the-money put options for the boutique hedge fund I manage this morning, I will be sure to do that. So yeah - while, I am brushing off my old 101 book, maybe you can try not to make yourself sound foolish in front of audience next time.
I'm very happy that you can buy baskets of financial sector out-of-money put options for boutique hedge funds and still find time to use Google.
However, you are still wrong. In accounting, revenues are not the same as cash. A revenue event may be committed to the books well in advance of cash changing hands, and indeed the first step for most revenue is to be entered into accounts receivable.
What we are discussing here the difference between cashflow and revenue, which is a critical question for investors because of the way Groupon is choosing to run its books.
If you would be so kind as to tell me the fund you work for, I would be grateful. It is my intention never to invest in such a firm.
We only invest for clients in the net worth range of $100k+.
Just go back and read the entire first sentence that you continue to quote: "Revenue is also cash - before expenses [they are collecting this amount]. I'm not suggesting that Groupon's 'operations activities' aren't responsible for pulling/keeping them in the red."
... clearly not a Merriam-Webster quote - rather my own; to describe a simple concept: Groupon makes money (see definitions: USD; cash) - potentially, these resources could be spent more efficiently.
In regards to Mark-to-Market Accounting, an simple example could be for when a journal entry is made in/debit to 'Accounts Receivable' - you're right, this has not effect on the cash balance.
So your point is valid, but contradictory. Because amounts under ‘Accounts Receivables’ are not considered revenues – assets (maybe, but still not exactly) - but certainly they cannot be called revenues. As receivables are earned, they are transferred to 'Cash,' under assets and now it’s both a revenue and cash.
Also, companies rarely sit on receivables. Instead, they factor them (or borrow against them) and "Voilà!"... cash!
The majority of business owners believe they can invest these amounts and make a higher return than they are being charged in interest.
That all being said, I think your point there isn't very strong.
The two objections I've seen to Groupon's accounting practices are:
* They had that weird metric which miraculously showed them being wildly profitable, and
* They have a long lag time for collecting actual cash, but still book the groupon cut as revenue in a given period.
The reason people get anxious about the second point is because revenue isn't cashflow. Groupon has amazing revenues on its books, but cash-wise it seems to play things close to the line.
It's a problem because it makes Groupon highly unpredictable. If a significant fraction of groupons begin to fail (and at any point in time the majority of Groupon's groupons have not been present cashflow) then Groupon is stuffed. And with only 3 years of operations, all of them exceptional and not steady-state in nature, it's hard to say what will happen.
You say "Revenue is also cash - before expenses". That's still not correct. Revenue can be booked before cash, cash be taken that isn't revenue. Sometimes cash comes in advance. The key point is: Groupon can book revenues that aren't backed by cash, and they have done so aggressively. And given their apparently high costs and relatively small cash reserves, it's basically a smoke-and-mirrors act.
They could borrow against their A/R, but it wouldn't be cheap given the factors outlined above. Whether they succeed or not still relies totally on a low bad-debts rate, regardless of what they can borrow.
It's just been a supremely turbulent/volatile this summer and eyes have shifted to Tech IPOs commonly during downslopes. People have been considering if Tech IPOs are over-valued - not forgetting what happened just a couple years ago.
My blog on the credibility of Groupon's IPO Valuation maybe wasn't so spot on. Granted, I voiced my thoughts on the IPO's validity much before the coaster ride investors have been on this summer. Blog from (6/18/11): http://jacobirw.wordpress.com/2011/06/18/groupon-pre-ipo-val...
Despite the consensus on Groupon's overall unworthiness at this time, with new management (or a pivot under current) the Groupon IPO could be right back in the positive light of investors and the tech community alike. It must be remembered that they are now a resource for thousands upon thousands of business owners that have filled Groupon's pockets with over a billion in cash.*
*Estimated 1.6 billion in 2011 fiscal year.