You won’t see Sucharita Mulpuru standing in line to buy shares when Groupon sells its $750 million IPO. The Forrester analyst says the talk of valuing the company at $30 billion just doesn’t make any sense. In fact, she can’t even justify the $6 billion offer from Google that Groupon turned down.
“Let me be clear, this is fundamentally a decent economic model — there are no expensive fixed costs, and the merchant bears the inventory risk,” Mulpuru wrote on her blog. The problem, she said, is the unsustainability of growth. She noted that Groupon grew revenues from $30 million in 2009 to over $700 million in 2010 through acquisitions overseas, a quarter billion dollars in marketing and launching in 100 new markets. But if the company is already in Sioux Falls, SD, just how many new markets are left, she wonders?
If you take out what the analyst brands “artificial” growth, you’re left with only $96 million in “truly organic growth” in 2010. That 233% revenue growth is good, but boring compared to the 2,200% growth being pitched for the IPO. The Forrester analyst figures a 20 times multiple on the organic growth would value the company at $2 billion, well below the $6 billion that Google offered in December and a tiny fraction of the $30 billion from Street talk now.
“This IPO game isn’t about finding value, it’s about finding a greater fool who actually believes the valuation is true. Trust me, you will be the fool,” Mulpuru wrote in telling investors to avoid the Groupon IPO and wait for better opportunities from social networking companies with greater profitability and higher barriers to entry.
RBR-TVBR observation: What is the barrier to entry for anyone wanting to compete with Groupon? Pretty much none. That’s why media companies who didn’t partner with Groupon early on are now signing on with a competitor or launching their own “daily deal” type of business.