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Groupon IPO on shaky legs

One wonders how this happened — Groupon being called the fastest growing company in history, and then going for an IPO, only to find almost every single blogger and journalist shooting them down. But that is exactly the answer to how it has transpired. The company has grown too fast and is now listing at the wrong time.

It is a good and bad day for group buying. Hopefully people will not lose any interest and faith in the world’s busiest new online sector, yet on the other hand, many online sources are quoted as being tired of Groupon’s antics. Either way, whatever is written and whatever the sentiment, the company will list soon and its shares will be bought. It will be a question of what happens next.

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Let’s have a look at what is going on in this IPO. In the S-1 (the document needed to list), Groupon wants to raise a total of US$750-million (apparently more, this number is purely a placeholder for calculating fees). This is a high figure because currently it spends US$1.43 to make US$1, a ratio that increases all the time. As one writer asks: If you can’t figure out how to make money on US$3-billion in revenue, when will you? US$10-billion?

The investors themselves have been roasted as well, not for running a loss-making machine, but for cashing out insiders and investors. They recently raised a billion dollars in investment, and used almost $800-million of that to pay them, instead of using it on the business.

Another number that is quite shocking is that only 19% of Groupon’s total customers have ever bought a deal. I personally cannot see how this can be true, but where there is smoke, there must be fire, so the number must be low. Also, vendors very rarely use Groupon again — so with few repeat customers, is this a business that can sustain itself?

The business model is easy to replicate and competition sites are numbered in the thousands worldwide. You can buy Groupon clones in the dozens off the shelf from India. Just add a logo, change the background and you have your very own “[Place interesting name here]”.

There are too many questions and the answers are not looking good. This is both positive and negative for group buying. Groupon going down would give everyone in the industry a poor image.

Things could still work out well though, if Groupon manages to quickly turn its frantic spending into sustainable profits. The final question will always lie with the public who have the choice to buy a share or two. Forbes Magazine even claims the IPO shouldn’t go ahead.

What do you think of the Groupon IPO — would you invest?

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