No it’s not.
I was just reading a book by the always wonderful Seth Godin last night in which he touches on Wallstreet’s bizarre rationale behind valuing companies based on what they did yesterday. Once companies have been public for awhile the public (investors) generally evaluates them on past performance. And, as Godin pointed out, this rarely makes sense.
I get the same feeling with credit score (really WHAT is preventing us from simply cashing out ALL of our available credit and heading to Cuba?!).
In reality nothing.
It is this same “nothingness”, social barriers, social norms that governs the valuation of businesses based on PAST performance. But, who’s to say they won’t blast off – change direction – and dominate the world. Or, like Netflix, make one adjustment and lost hundreds of thousands of subscribers and half it’s valuation?
I find predicting the future to be a waste of time.
But it is in this same light that I wonder about Groupon’s impending IPO. It seems Wallstreet – and investors – through all of this out the window when dealing with new IPOs. Something about fresh meat, and another sucker, that allows everyone to put on their financial blinders and value any company, at any price.
According to estimates it’s valued at (based on the share price set and the number of shares available) at $12.7 billion. Just shy of $13 billion.
Here’s a more detailed explanation about why Groupon is not worth $13 billion.
Of most interesting note are:
- Groupon generated ~$300 million of revenue last year and should generate about $1.7 billion of revenue this year.
- Groupon is now operating basically at break-even, with the North American business earning a modest profit and the international business losing a modest amount.
- Groupon is cash-flow positive and has ~$250 million in the bank
- Groupon’s growth rate is decelerating sharply, and this deceleration is likely to continue for at least several more quarters.
Anecdotally, almost everyone I talk to is sick of the daily deal emails. Not only are there thousands of Groupon competitors (as well as major competition from the likes of LivingSocial), but daily deals are now being offered by individual retailers. The market may prove this wrong, and Groupon could add market share and grow its revenues by leveraging it’s current subscribers in new directions, but for now Groupon is not a $13 billion company.