Valuing a growth phase company such as Groupon is traditionally difficult for Wall Street prophets: How can you evaluate run up costs in the order of several hundred million dollars when a company is growing at a break-neck pace and is building a new form of sales concept for which there is no precedent?
How far can Groupon reduce it’s sales effort (in the direction of merchants) and it’s marketing effort (in the direction of customers) over time? And can Groupon remain attractive for all participants over the long run? These are the decisive factors for a substantiated valuation of Groupon’s financials.
At Exciting Commerce we have repeatedly grappled with the growth potential of Groupon. But the most exciting part of the Groupon business model is that for less ambitious CEOs, it is possible to run at modest profitability levels:
"In a letter to prospective shareholders, Groupon’s chief executive, Andrew D. Mason, highlighted the company’s growth opportunities but cautioned investors to temper their profit expectations.
“In the past, we’ve made investments in growth that turned a healthy forecasted quarterly profit into a sizable loss,” he said.
“When we see opportunities to invest in long-term growth, expect that we will pursue them regardless of certain short-term consequences.”
The Dealbook of the New York Times gives a background abstract of Groupon’s short history which started at the end of 2008 when it went online. They have published a well based evaluation of the planned IPO.
Symptomatic for the evaluation of companies such as Groupon is the debate which GigaOm has noted ("Groupon: Doomed to Fail or Worth a Leap?"). It just goes to show that it depends on which glasses you are wearing when doing the analysis.
Deeper analysis into the financials also available on Quora.
Related posts:
- Groupon IPO: Groupon Reveals Financial Performance Figures
- Groupon Now! and the Mobile Future
- Is Groupon Developing in the Right Direction for the Long Term?
- On The Way To $950 Million: Groupon Raises $500 Million With $345 Million Going To Cash Out Insiders
Originally posted in German by Jochen Krisch, adapted for excitingcommerce.com by Jason Soo.
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