its financial reporting house in order? If all is well and the company has a viable long-term model, doesn’t it make sense to wait until the market can better value the company? Or is the rush to the I.P.O. because Morgan Stanley, Goldman Sachs and Credit Suisse want to collect their fee (which is tied to the market value of the stock issued) before the company’s value drops further. After all, the investment banker fees for Groupon’s I.P.O. already have dropped significantly as the company’s estimated value has plunged to about $10 billion to $11 billion from an estimated $20 billion. And then of course, there is the lost prestige of not being able to get the deal done. So, is there anything Groupon can do to save its I.P.O.? Yes, but only if there is a business to save, and right now, that’s the big question. To determine whether the company has a viable business model, we need more financial reporting transparency from Groupon and less marketing hype. Currently, Groupon’s numbers just don’t add up, nor do they make much sense. The company needs to postpone its I.P.O. until it gets its financial reporting in order. Two issues need to be addressed to restore confidence in the company’s disclosures: Groupon must drastically improve its system of internal controls over financial reporting. Its recent restatements and accounting errors suggest that the company’s sharp growth through acquisitions may have stressed its reporting systems. A formal report from its independent auditors on its internal controls would add additional credibility to its numbers. The company must address several important questions about its cash flows. How would operating cash flows be affected if the company’s vendor payment model became unsustainable? What would free cash flows really have been had Groupon paid for its acquisitions in cash rather than in stock? What kind of cash flows are the company’s $172 million in good will and intangible assets (more than 45 percent of assets at the end of 2010) creating? Accomplishing these two tasks will take some time. But if there is really anything to Groupon’s business model, the prospects for a future I.P.O. are much brighter. But the downside is that the numbers may expose the company as the 2011 version of the 1990s Internet bubble.
2011 Media Report Villanova School of Business Page 203