At half off, is Groupon a buy?

The website has scaled back its IPO in response to a weak stock marketplace, executive exits and questions regarding its accounting as well as business model. But the debut can still be a tough sell.

As with half-price crochet lessons, Groupon's newly planned stock providing is sharply discounted from a cost that was arbitrary to begin with.

The company is seeking to raise $621 million for a sliver of its shares, which would definitely imply a marketplace value of $11.4 billion, The Wall Street Journal reports. That's down from an estimated value of $15 billion to $20 billion -- with many projections as high as $25 billion -- that would have resulted from an initial public providing that was scrapped earlier this year.

In June I wrote that Groupon's theoretical cost was preposterously high relative to its revenues, not least due to the fact its revenues weren't really income.

Groupon holds no inventory but rather markets goods and services on behalf of merchants in exchange for a cut. It was claiming certainly not just its take but also the merchants' as revenues.

Last month, after regulators questioned the practice, Groupon said it will restate revenues, reducing them by over half for the year. It also said its No. 2 executive had left for Google (GOOG, news), which has launched its have local discount service called Google Offers.

Last week, Groupon released third-quarter results showing that revenues climbed 9% from the second quarter. That's a sharp slowdown from growth of 33% during the 2nd quarter and 72% during the first.

With world stock prices having tumbled because summer, investors and the media have turned less cheerful toward Groupon. Chief Executive Andrew Mason called criticism "insane" and "hilarious" in an August memo to employees but has remained quiet of late, so as certainly not to violate rules about information released before a stock providing.

A few of the criticism is overdone. If Groupon indeed secures an $11 billon stock marketplace value, its Nov. 3 offering will have been anything but a flop.

Definitely not very a year ago, Google offered $6 billion for the business. If the valuation strikes many as silly, that's the fault of investors, definitely not Groupon.

For that matter, if discounted massages as well as yoga visits strike a few as consumerist fluff, it reflects just on the consumers who purchased 33 million Groupons last quarter.

Prospective buyers of the stock should exercise caution, however.

In June I estimated Groupon's pending price-to-sales ratio at 18. It's around one-third of that now, but that's still a good deal for a profitless company with sharply slowing sales growth as well as over a dozen competitors.

The company has additionally exhausted a great deal of its expansion possible. In June 2009 it operated in five North American markets. It's up to 175, plus 40 nations.

"In any marketplace in America, we can market $500,000 of half-off manicures as well as teeth-whitening procedures in a year simply by hanging out a shingle," wrote Sucharita Mulpuru, an analyst with Forrester Research.

Groupon's expansion into new cities is akin to a retailer opening new shops, so exactly what matters is its "same-store" sales growth, which has been sharply slower than its total sales growth, according to Mulpuru.

Will the stock jump on its first day of trading? That depends on Morgan Stanley (MS, news), Goldman Sachs Group (GS, news) and the deal's other underwriters. If they do well by both their investment banking clients and their retail investors, the deal will raise the most that the public pays, absolutely nothing more, as well as shares is small changed on their first day. Naturally, that rarely happens.

As well as the tiny size of the Groupon deal seems to set the conditions for a scarcity of shares, a run-up in the cost and -- pure speculation here -- a follow-on providing in which insiders market more.

So if you're thinking about buying Groupon shares with funds you'd otherwise bet on a horse, go ahead. Grab a few on a dip as well as try to unload it on a more eager buyer a day to 2 later.

If, however, you are a long-term investor hunting to settle down with a dot-com stock, go for Google instead. It's very priced, stuffed with money and, seven years after its stock providing, it's still expected to grow its sales by over 30% this year.


View the original article here