Remember all the hoo-hah about the imminent public floatation of Groupon and how it was going to be one of THE events of the year and yet more evidence that dot.com companies are back in favour with investors? It was all just more hot air, smoke and mirrors, as Martyn Warwick reports.
One of what was being presented as one of the potentially greatest stock offerings de nos jours is in tatters after Groupon was forced to restate its revenues and the woman who was second-in-command of the company, Chief Operating Officer Margo Georgiadis, left precipitately after just five months in post. It makes Leo Apotheker's brief tenure at HP look like a lifetime.
The US Securities and Exchange Commission (SEC) has been carrying out due diligence on Groupon's books since it filed for IPO and has found that as a result of a particularly creative approach the company has taken in regards to accounting for its revenues, it might be worth actually about half of the US$20 million Groupon expected and wanted to be valued at.
It seems the SEC came back to Groupon to voice serious concerns that revenue figures have been grossly overstated and, as a result, the company has been forced to repudiate its earlier filing and has 'agreed' to book as revenue just the commission it gets when an online coupon is sold.
Hitherto the company had been booking the full value of the coupon (say $10 per transaction) when up to half of that sum actually goes as a "merchant fee" back to the business honouring the coupon (say $5 per transaction).
It's a quick and easy way to over-inflate value and, having been caught bang-to-rights, Groupon's declared 2010 sales revenues have suddenly been revised savagely downwards from $714.4 million to $312.9 million.
And there was no fulsome farewell to the COO, no plaudits and not even the usual damning with faint praise of a discarded executive as Ms. Georgiadis waltzed out of Groupon and back to a senior post at Google from whence she arrived, trailling clouds of glory, just 20 weeks ago.
In a blog posting, Andrew Mason, Groupon's founder and CEO, said the company had "hired many senior executives this year, but not all have worked out." He added that the COO's departure will allow Groupon to "reorganise in a way that reflects our evolving strategic priorities." Whatever they may be now that the company's floatation value has been effectively cut by 50 per cent. Thank you and goodnight.
This unedifying episode casts further doubt on Groupon's ability to float successfully. An investor road show that had been planned for earlier this month was cancelled at short notice and the timetable for the IPO has been derailed. It must now be a moot point as to whether or not it can ever be put back on track.
Meanwhile, Groupon is going through cash like a sailor on shore leave while its novelty value wanes and customers go elsewhere. To keep going, Groupon desperately needs to go to IPO but the froth on its balance sheet has been blown away by the SEC and its hard to see how anyone will now be prepared to stump-up cold, hard cash unless Groupon's valuation is revised drastically downwards.
Perhaps the company can extend the generous accounting its applied to its own revenues to prospective investors and offer them ten buck's worth of shares for $5? But even then, there'll be plenty who wouldn't touch the offer with the proverbial barge pole.
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