Groupon’s Revised S-1 Doesn’t Float Well in Choppy Market


ADOTAS – Apparently the latest stock market turmoil has brought the town tech-bubble criers out from under their rocks, particularly since public Internet-based companies seen as market bellwethers for the social media revolution have taken a hit.

In particular, the stock of business-oriented social network LinkedIn (LNKD) has been riding a royal roller coaster since its IPO in May — the stock was rolling above $100 before the massive sell-off last week and is now ranging between $80 and $85, which is well above the $60 low the stock saw in mid-June.

Certainly the whippy waters down on Wall Street have made IPO-ready companies have second thoughts about filing to go public — LivingSocial is reportedly having cold feet. However, investor eyes are on chief competitor Groupon, which released an updated S-1 filing with some surprising figures.

In particular, the company reported revenue of $878 million in Q211, up from $622 million in the first quarter, but had $102.7 million in operational losses (following a $117 million loss in Q111), due mainly to expansion of staff. In the last two years, the company has increased its staff from 37 employees t0 9,625. The company was able to shave marketing costs — from $208 million in Q111 to $170 million in Q211.

However, the number of domestic merchants signed up for exclusive arrangements fell slightly quarter to quarter — from 20,233 to 20,041. That may not seem significant, but this has always been a huge growth area for the company — merchants were at 10,115 in Q310 and 13,984 in Q410 — and a statistic that made you think less about the fact the company was spending more than a dollar for every dollar it took in.

On the other hand, international merchant deals are skyrocketing, blowing up from 20,672 in the first quarter to nearly 29,000 in the second. Considering how frantically Groupon has been acquiring to expand its international presence, we could guess that the company could see domestic business maxing out. At the same, it just introduced real-time deals through Groupon Now and partnerships with check-in based mobile social networks Foursquare and Loopt.

The company has also apparently downplayed references to a controversial accounting technique — adjusted consolidated segment operating income, or ASCOI — that did not include costs for new subscriber acquisitions; the first appearance of ASCOI is on page 32 of the S-1.

Adding a little insight into the company’s “unconventional” methods, the report includes this explanation:

We exclude those costs because, unlike our other marketing expenses, they are an up-front investment to acquire new subscribers that we expect to end when this period of rapid expansion in our subscriber base concludes and we determine that the returns on such investment are no longer attractive. While we track this management metric internally to gauge our performance, we encourage you to base your investment decision on whatever metrics make you comfortable.

Taken with the recent market troubles, this new S-1 doesn’t seem to inspire the kind of confidence that makes investors chomp at the bit. Then again, Groupon’s revenue for the first half of 2011 was $1.5 billion, compared to $131.5 million over the same period the year before. That’s massive growth, all right, but the real question is whether the spurt is over — especially as the stock market is on the verge of tanking.

As we noted last week, online ad tech firms such as ValueClick (VCLK) and Interclick (ICLK) have taken a bath with the rest of the NASDAQ. Yesterday’s late rally helped VCLK snap back from a daily nadir of $13.78 to close above $14.50; ICLK managed to climb to a $5.85 close after sinking to $5.43 in the afternoon. In July, VCLK reached a three-year high of $18.78 and ICLK hit its peak at $8.90. VCLK and ICLK were down 0.55% and 0.06% respectively as of press time.



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