As you’ve surely heard by now, Groupon yesterday filed to go public. It’s a giant offering of $750 million, with giant Q1 revenue of $664 million and giant Q1 net loss of $113 million.
You can read all the details here, including excerpts from CEO Andrew Mason’s entertaining “introductory letter.” What I didn’t put in that post, however, was any qualitative hand-wringing about bubbles, questions about the latest/greatest accounting metric (“adjusted CSOI”) or an analysis of Groupon’s competitive defensibility (which Mason suggests is irrelevant so long as Groupon’s customers and merchants are happy).
Instead, I wanted to sleep on it. When I woke up this morning, I felt queasy.
To be clear, my unease is not based on the above concerns. I’m already on record as saying there’s a bubble (albeit not as severe as 1999), and I think that Groupon Now shows that the company is able to smartly evolve beyond its core product.
Instead, this is about Groupon’s seeming obsession with liquidity. Remember, it wasn’t too long ago that Groupon raised a $950 million Series E round of which $573 million was used to partially cash out early employees and shareholders. Then there were reports that the company was pushing to go public even without having its bankers in place. Then it files just one month after hiring its #2 to Mason (following the surprise resignation of Rob Solomon). And the S-1 says that some of the shares being offered will come from “selling shareholders” – as opposed to all coming from the company itself.
I buy the broader arguments in favor of founder liquidity, but we’re way beyond “paying the mortgage” here. And while Groupon generates tons of revenue, it’s wildly unprofitable. Were the Groupon IPO roadshow making its way to the home office, I’d simply ask: “Why the rush?”
It can’t simply be for working capital, since it could have held some of that earlier $573 million back (or not let insiders sell via the IPO). Is this just a byproduct of the company's overall strategy of rapid growth? Is it a belief that the IPO window may only be open for a limited time? Is it an indication that the company is bumping up against the 500-shareholder rule?
So I'd ask the question. And then hope that the answer lets me sleep at night.