IP Uh Oh
Groupon filed an amended S-1 document today for its delayed IPO, which has been under scrutiny from investors and the SEC. The startup has been critiqued for the fact that is has had to boost spending to add users to its email list. The filing says the company plans to “significantly” reduce online marketing spending “over time as such investments yield insufficient returns,” reports Bloomberg.
According to the filing, those marketing costs stopped paying off because of “changes in subscriber economics, achievement of subscriber saturation levels in various markets or a determination that subscriber growth objectives can be satisfied though alternative means.”
The company insists that cutting back won’t negatively impact businesses with existing subscribers, although trends have shown users tend to be less engaged and profitable over time.
One of the reasons a bubble formed in the tech sector back in the 1990s was that companies with very little history and flimsy financials were able to go public at hundred million dollar valuations. While the market for tech IPOs seems to be gathering steam, one encouraging sign is that the SEC is taking a hard look at some of the questionable accounting of Groupon, which has drawn a lot of criticism for its fishy S-1 filing and rush to spend capital paying back early investors and employees.
Groupon had an operating loss of $420 million last year. But the daily deal giant asked that stock pickers use a strange metric to gauge the company’s profitability: adjusted consolidated operating incomes, or adjusted CSOI. As Reuters Breaking Views column pointed out, “Strip out marketing expenses, acquisition-related costs, stock compensation, interest expense and payments to the tax man and, presto, the Chicago startup led by Andrew Mason earned $60.6 million. If investors accepted this fantastical form of accounting, all sorts of companies would be worth billions more too.”
Is That a Hockey Stick In Your Pocket
This is a guest post by Shai Goldman, a Director at Silicon Valley Bank
Zynga, the biggest casual gaming company in the nation and the maker of popular games titles such as Farmville, CityVille and Mafia Wars, filed for its IPO today.
To summarize quickly, Zynga is performing extremely well. They were profitable in 2010 and will continue to be profitable in 2011 (based on 2011 Q1 figures). They are looking to raise $1B through the IPO and have $996.7 in cash on the books.
One of the highlights is that top line revenue is growing quickly, from $19.4M in ’08 to $121.5M in ’09, roughly 600% growth. It jumped another 500% to $597.5M in ’10 and their 2011 revenue run rate is $941.7, roughly 150% growth. Although their run rate is $941.7 for 2011, revenue expectations are closer to $1.5B, which would be 250% growth from 2010.
Zynga has raised over $500M from New York City investors such as Union Square Ventures, who own 5.5%. Based on this IPO, it would be safe to assume that Zynga’s valuation would allow USV to make back their entire fund $150 million fund from 2008.