Friday, August 12, 2011

Groupon Follow-Up

Going out on a limb a little bit...I'll predict that 3 years from now, Groupon will rue the day they turned down Google's $5-6 billion offer. 

ACSOI, mentioned nearly 50 times in the document, showed that Groupon made $82 million in the first quarter of the year. But ACSOI left out the hundreds of millions of dollars associated with marketing the service, acquiring other businesses, and bringing in new subscribers. So it left out very real costs of growth—not one-off investments or unusual charges, but expenditures core to the company's expanding business.
Investors noticed—and howled. The Wall Street Journal termed the filing "magic." Tech blogs declared the company a sham. Many commentators hearkened back to the worst days of the late-1990s tech bubble, when out-of-nowhere dot-coms with cloudy revenue streams got billions from IPO-hungry investors. Forbes pointed to one especially salient piece of commentary from 1998. "Certain internet CFOs are pushing investors to look at EBITDAM," Silicon Valley investor Bill Gurley wrote. "The 'M' represents marketing, and is an attempt to get Wall Street to ignore what has become the single biggest expenditure for internet startups. This only makes sense if you truly believe that marketing costs will one day go away, which should be considered unlikely. Perhaps we should make it easier and skip straight to EBE (earnings before expenses)."

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