October 13th, 2011 - Posted by Big Al
Big Al here. I've helped a lot of struggling companies through the years. I know the signs: bloated inventory, unfunded plant purchases, products that are sold for less than the cost of production. I can smell a client a mile off. So I was very surprised to read in the papers about Groupon, the Chicago-based company that was the darling of the Internet. Don't get me wrong - they have a bright future. Companies like Facebook first announced then back-pedaled on plans to introduce services similar to Groupon's Internet- and email-based coupons that offer deep discounts. Groupon's here to stay - it has more than 100 million subscribers - but there are some bumps in the road. Bumps like these get my attention.
Earlier this year, the company restated its 2010 sales figures from $713.4 million to $312.9 million. And so far in 2011, they restated $1.52 billion down to $688.1 million. I don't need my TI-83 to know that's roughly 45% of what they told the world. These are bright people, maybe a little over-confident - they turned down a multi-billion dollar deal from Google. But back to the accounting question, how could they get that wrong?
The company said in an Securities and Exchange Commission filing that "Historically, the company has reported the gross amounts billed to its subscribers as revenue." Nothing wrong with that if you are offering your own goods or services. But Groupon doesn't do that - it takes the money from customers who buy coupons good for redemption, then splits that money fifty-fifty, even steven, with the merchants that actually offer the goods or services. Now maybe I'm old school, but a reasonable person like me would expect earning statements to reflect their cut of the action, not the full amount.
So, is Big Al thinking about buying into the Groupon IPO? Naw. Last month its' COO left the company, walking away from a million Groupon shares. Plus, I've read that over $900 million of the $1.1 billion raised from private equity investors has gone to cash out early investors. Hmmm, you'd think they'd want to keep their finger in this pie...
Then I read this, from Henry Blodgett, "[Groupon has] a 'working capital deficit' or 'negative working capital.' A company has a working capital deficit when it owes more in near-term bills than it has cash available to pay. Companies can operate with a working capital deficit as long as they have another source of cash to cover the bills as they come due."
Hey Groupon, give me a call. We can work something out...
Big Al is the Capsim lender of last resort. When Capsim companies run out of money, Big Al arrives, with a checkbook and a smile, to write a check that covers the shortfall - at above market interest, of course!