Groupon's out with an updated S-1
, the highlights of which are continued large losses and revenue growth far below that of recent quarters. In the chart of quarterly operations below, recall that "gross profit" represents the fees Groupon collects on deals
, which I shall refer to as real revenue. In the past five quarters, sequential real revenue growth has been 72%, 110%, 112%, 76%, and now 26%.
For a company that boldly said it would pursue growth at the expense of profits, this is a huge red flag. Why? Because the net income picture is still terrible. Net income printed its third consecutive $100 million loss, with no improvement over Q1 despite the continued growth in revenue. Yes, as a percentage of revenue the metrics improved somewhat, but this is possibly the most dynamic part of e-commerce, an industry that's barely two years old with competition rapidly emerging. And anecdotally, as my friend Rocky Agrawal
has pointed out, the daily deals space is seeing merchant fatigue and customer fatigue. If revenue trends continue, Groupon might report a sequential revenue decrease in Q3. It is simply running out of time to figure out how to be profitable.
The other part of the Groupon story is its continued negative working capital balance, with working capital of -$305 million. As of Q2, Groupon has $225 million in cash and owes its merchants $392 million. It owes merchants that much money because it holds the merchant portion of a Groupon for up to 60 days. This merchant payables line item is up 141% year-to-date. Because merchants have shown little loyalty to daily deals providers, going with whoever offers the best deal (ironic), this is an easy way for competitors to chip away at Groupon's market share, and a liquidity risk down the road. Without merchant payables Groupon would be out of capital.For full version of article click here.