Unredeemed Groupon

NAAn analysis of the Groupon S-1 filed last week for their upcoming IPO highlights some

interesting trends. A single table illustrates how the Groupon business model is entirely based

upon the concept of float. The payments the company owes to merchants are growing at much

faster rates than actual revenue rates. In fact, the balance sheet shows that the company owes

more to merchants than total current assets, an unusual situation.

The Revenue Curve

There is no question that Groupon's revenue curve is amazing.

From sales of just $30 million in 2009 to sales of $713 million in 2010, Groupon has shown

incredible growth rates.

As if that were not enough, sales in the first quarter of 2011 were $644 million.

Assuming trailing twelve-month revenue of approximately $1.2 billion, this would give Groupon

a price/sales ratio of about 160. This is an extremely high valuation metric for a company with

revenues of over $1 billion. (The S-1 does not provide quarterly revenue data for 2010, so

assumptions must be made; we assumed $550 million for the last three quarters of 2010.)

This type of growth rate is astonishing, frankly, but focusing on only the revenue growth is

superficial with Groupon's business model.

Groupon's Business Model

Groupon sells coupons to customers on behalf of merchants who sign an agreement with

Groupon. To the merchant, Groupon serves as outsourced marketing, with the hope that

Groupon's incentive