Right now, Groupon’s got a pretty good thing going on. They’re one of the fastest growing internet start-ups ever, they’re raking in loads of cash, and they can wear flip-flops to work. And yet as they prepare for their $30 billion IPO, the cracks are starting to show. So why is everyone and their mother questioning the company’s worth?
It’s too good to be true. Not only is it unlikely Groupon will be able to maintain current growth levels, but those levels might not be as impressive as they seem. Here’s the breakdown: While Groupon reported over $700 million in revenue last year, $615 million of that came from acquisitions, marketing, and expanding in new markets. And the way Groupon counts their revenue is questionable at best, and definitely misleading. Groupon defines “revenue” as the “purchase price paid by customers” though the Groupon doesn’t retain all that money, with a 50% share going to the company issuing the coupon. Then Groupon calls the amount of “revenue” retained after paying merchants their cut “gross profit”. While the way Groupon chooses to keep their books is their business, and perfectly legal as long as they’re up front about what the numbers mean, but it means the numbers often reported by the media may not be as impressive as they sound given that most companies have a very different definition of “revenue”. Check Out: Groupon’s Questionable Financial Disclosures.
People don’t trust Eric Lefkofsky. The man is clearly brilliant. He has a knack for making money. But trouble seems to follow him in every venture. When Groupon’s chairman and largest shareholder’s first company, Brandon Apparel, failed, he was sued by one of its lenders, the former owner of Brandon Apparel, the NFL, and the MLB. When Lefkofsky sold his next venture, Starbelly.com, for $240 million to a company called Ha-Lo Industries, Ha-Lo went bankrupt shortly thereafter, with Lefkofsky again being named defendant in a lawsuit. Then in 2007, shortly after Lefkofsky’s next company, InnerWorkings, had its initial public offering, when the stock was up 82%, he began unloading his shares. Then in 2008 a wildly disturbing lawsuit filed against Lefkofsky and InnerWorkings accused him of “racketeering”, “terrorist tactics”, “having effectively almost destroyed the company”. While the suit was ultimately dropped, it left a dark cloud over Lefkofsky’s name. And now Lefkofsky seems to be repeating some of his old patterns, with him and his family cashing out $382 million in Groupon before the company had even filed for its IPO.