It worked on the novelty effect and it was doomed to fail.
A little premature to write an obituary of a company that finished 2011 with 1.6B in revenue.
A little premature to write an obituary of a company that finished 2011 with 1.6B in revenue.
Web-based companies have to make a profit too. Why do people forget this?
I'd invest my money in a company who makes 200,000 in revenue with 100,000 in profits much faster than one who makes 200,000,000,000,000 in revenue with 0 in profits.
To me, this seems so basic, and I'm certainly not very well versed in business. Am I missing something?
That is debatable. Consider this: Amazon started off just selling books, today they are gunning for Walmart. At the time, people raised similar objections and Amazon took heat for years for remaining unprofitable. No one is complaining today.
Similarly, I see Groupon's deals business as just one product. There are signs from their recent aquisitions that they might diversify with new products targeted at the same small businesses(such as credit card processing).
Now, just because it all ended well for Amazon doesn't mean the same will happen for Groupon. I am just pointing out that it is not a foreign strategy to prefer growth over profitability for many years after the IPO.
Making a bil in revenue by the way of your example versus Groupon's way have very different risks associated with it.
Revenue != profit. You could generate a trillion in revenue. What's left after the bills are paid is what counts.
If your argument that profits right now are the only thing that matter, then you'd be hating on amazon for the same reason you're hating on groupon. And if Amazon listened to folks like you and went for immediate profitability, they'd likely not have the growth they did.
The real argument anti-groupon folks should be making is that in the long term, they don't see profitability. Too much emphasis is being put on their present unprofitability.
Under GAAP, money which is contractually owed to a third party at the time of collection is not booked as revenue. Under Groupon's accounting practices, it is. This allows them to inflate revenue while downstating their liabilities. This is why the SEC is investigating them for fraud.
http://www.sec.gov/Archives/edgar/data/1490281/0001445305120...
The "Gross Billings" numbers include the total amount of deals "sold", including the merchants' portions. The smaller "revenues" number front-loads income that should be recorded over time i.e., by including items that should be recorded in reserves or liabilities until such items are resolved.
For example, Groupon treats as revenue all of Groupon's theoretical portion of a sale, including any amounts that it knows will have to refund and amounts that it estimates that it will have to refund. However, such items are not revenue, either b/c Groupon knows it will be refunding such items (and thus has no claim to the money), or because it expects that it may have to. Such items are supposed to be tracked in a separate account. The separate account is balanced out by a reserve account (a liability) which is removed from the books when the risk of refund has passed.
Further, the SEC hasn't actually kicked off a formal investigation and if it does, it will be for financial control and accounting deficiencies, not fraud.
Also, as to the SEC investigation, it could potentially be for both, as fraud would relate to the numbers in the 10-K filing and other filings with the SEC, in addition to financial and accounting deficiencies. SEC investigations are not criminal investigations--the SEC does not have to lay out "charges" prior to beginning its investigation.
This is simply false. Not only does it net out reserves from revenue, it even nets them out from gross billings:
"Gross billings. This metric represents the gross amounts collected from customers for Groupons sold, excluding any applicable taxes and net of estimated refunds. We consider this metric to be an important indicator of our growth and business performance as it is a proxy for the dollar volume of transactions through our marketplace, net of tax and reserves."
All I said was that the SEC had not begun a formal investigation, which is fact. And I stand by my contention that "fraud" is probably the wrong description.