Groupon – Some Offer Red Alerts and Warnings

Filed in Uncategorized by on June 6, 2011 0 Comments

It’s more than a coupon, it’s a Groupon!

Depending on your age, you might be too young to remember the dotcom bubble of the ’90s. It was an exciting time, yet the fall was painful. Some called it a necessary step for Internet-based companies to define whether business models could be practical as the world entered the new millennium.

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The Anticipated IPO

Internet-based advertising company Groupon is looking forward to its Initial Public Offering (IPO) planned later this week. This is huge news for businesses attempting to grow to the next level. If successful, the IPO will generate a tremendous amount of cash to allow for more research and development, debt restructuring, hiring of talent, and other strategic investments they seek.

The Red Flags

Normally met as welcome news, there are always those who are not as optimistic of the company involved in an IPO. As reported in today’s Fortune magazine, questions have arisen whether Groupon is a viable business. Surely the model appears popular with consumers who gladly nab savings from the offers featured. The issue is: how do you account for the company historically losing money?

According to the article, two core issues should raise a red flag for anyone interested in participating as an investor. First, as mentioned, the company is now operating at a huge loss; currently that figure is 18% of its revenue. Secondly, founder Andrew Mason has intimated he wants out to pursue other ventures. These two facts have raised the eyebrows of some in the investment community. The idea of the founder ‘wanting out’ of the business he created, at such a critical stage in the company’s history, leaves one to wonder who possibly could replace the person who created the idea in the first place?

Some caution getting caught up in the frenzy that IPOs such as Groupon’s generate. Others point to the dotcom bust of the ’90s when companies were sprouting up like weeds in a lawn. They were created and touted as being successful, yet their idea or concept never materialized or sustained financial success.

As quick as the excitement captured the minds of business people and investors all over, the downfall was a steep and fast plunge which saw the enthusiasm evaporate almost in an instant.

The Big Question

The big question investors must ask is: what does the company plan to do with the $750 million it is expecting from the IPO? Just as important, investors might also want to know whether founder Mason will be sticking around and if not, who will be leading the company? After all, the trend of the public purchasing coupons upfront is just one phenomenon of how Internet-based companies are driving new markets. If the wizard disappears, will the magic continue?

Photo courtesy of Fred Thomas, III – fredyt123

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My professional background is in the Real Estate industry, with emphasis in the mortgage sector, having achieved Subject Matter Expert (S.M.E.) statusI am a free-lance writer for mortgage publications and provide online content for the real estat

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