Gustavo Ballvé on June 3rd, 2011
Corporate Governance, Corporate Strategy, Food for thought, Home, Industries, Investment Themes, Media, Mental models, Portfolio Management, Retailing, Risk management, Signal or Noise, Tech

The Groupon IPO filing is finally here, and as this WSJ story highlights the revenues growth curve is staggering. That said, the company makes no money and doesn’t expect to make any so soon (it’s expanding extremely fast). There are plenty of doubts about the sustainability of its business model, competition and – much more importantly – margin of safety, especially given the preliminary level of disclosure and a few corporate governance quirks such as a dual-class share structure and a preference for “earnings before all the bad stuff” metrics. Yet it’s one of those businesses that one almost has to follow for insights on other “new” businesses and companies, and how it can impact anything from traditional retailing to data analytics. We suggest previous posts in Buysiders.com for background.

Our previous posts on Groupon or group buying include one on group buying in Brazil, another on Facebook starting local deals and the original, Dec. 2010 link-fest on the USA Groupon). Also important is our “Marketing Revolution” post back in November 2010, in which we’ve laid a provocative vision for social media + augmented reality + geolocation + daily deals.

Since we’ve mentioned “doubts” regarding the sustainability of Groupon’s business model, here’s a very interesting take on Groupon’s reported numbers and metrics. The conclusion is perfect when thinking of joining the company’s fortunes in the IPO: “To be clear, I’m incredibly impressed with this company and what it has achieved. But a careful read of the rations is instructive when thinking about persistence and durability of the model.”

That said, one could be trapped into the “Groupon 1.0” model and ignore that Groupon is trying new ideas that sound particularly interesting (also linked above to an earlier post in Buysiders)… and the fact that competition worries can be partially solved by the IPO itself – because the company plans to use proceeds for acquisitions as well. Again, it doesn’t mean Facebook or Google can’t one day steal its thunder, but one has to keep one’s mind open when analyzing the evolution of business models in these sectors.

For more details the Dealbook coverage is spot-on. However, they have Groupon’s IPO amount at US$ 3 billion instead of the US$ 750 million seen in earlier reports.

Now this is a gem of a post at the Financial Times’ Alphaville blog: “How to write about the Groupon IPO when you don’t really care”. Funny yet raises relevant questions: our kind of story.

Groupon’s CEO wrote a letter to potential investors that brings Google’s founders’ 2004 letter to mind, and yet as we’ve linked above and also here (at the FT’s Business Blog), this deal has its quirks.

The video below (6:54) is interesting: Bloomberg columnist and InfectiousGreed.com writer Paul Kedrosky highlights that Groupon’s growth is not as operationally leveraged as, say, Facebook, since you must hire extensively (increase the sales force) to increase sales, you have to train them, retain them and so on. Groupon agrees and writes in the filing that it has to spend immensely to expand.

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