Groupon filed yet another amendment to its IPO. Among the shocking changes were that Groupon was forced by the SEC to reduce its revenues by more than half (recognizing only its share of merchant deals sold, not the full amount).
We also see in Groupon's latest S-1 (IPO filing) spelled out most clearly for the first time how much Groupon relies upon for short term cash from slowly paying its merchants (note again that Google Offers now pays merchants within 4 days, and has ample cash to do so):
Groupon again fine tunes the amount it has used to buy back stock - now up to $941.7 milllion used to cash out insiders - when the company's operations needs the cash (to put it mildly):
Liquidity and Capital Resources
As of June 30, 2011, we had $225.1 million in cash and cash equivalents, which primarily consisted of cash and money market accounts.
Since our inception, we have funded our working capital requirements and expansion primarily through private sales of common and preferred stock, yielding net proceeds of $1,112.9 million. We used $941.7 million of the proceeds from these sales to redeem shares of our common and preferred stock, and the remainder to fund acquisitions and for working capital and general corporate purposes. We used a significant portion of the net proceeds received from our private offerings to redeem shares because management and the board of directors determined that projected cash flow from future operations would be sufficient to support our growth strategy. As a result, we have funded our working capital requirements primarily with cash flow from operations to date. We generated positive cash flow from operations for the years ended December 31, 2009 and December 31, 2010 and the six months ended June 30, 2011 despite experiencing net losses in each of these periods, and we expect annual cash flow from operations to remain positive in the foreseeable future. We generally use this cash flow to fund our operations, make additional acquisitions, purchase capital expenditures and meet our other cash operating needs. Cash flow from operations was $7.5 million for the year ended December 31, 2009, $86.9 million for the year ended December 31, 2010 and $58.0 million for the six months ended June 30, 2011.
Although we can provide no assurances, we believe that the net proceeds from this offering, together with our available cash and cash equivalents balance and cash generated from operations, should be sufficient to meet our working capital requirements and other capital expenditures for the next twelve months.
It's also clear that Groupon must invest heavily to support its international acquistiions and expanded (Note that Google Offers and privately held Liviing Social, backed by Amazon.com, remain largely U.S. businesses.)
Anticipated Uses of Cash
Our priority in 2011 is to continue to increase our revenue by increasing the dollar volume of transactions that are processed through our marketplace, coupled with expansion and penetration into new domestic and international markets.
In our North America segment, we intend to continue to invest to acquire subscribers, to expand our salesforce and aggressively market our products. We also intend to acquire or make strategic investments in complementary businesses that add to our subscriber or customer base or provide incremental technology.
In our International segment, we also intend to continue to invest to acquire subscribers, to expand our salesforce and aggressively market our products. We also intend to acquire or make strategic investments in complementary businesses that add to our subscriber or customer base or provide incremental technology.
In order to support our overall global expansion, we expect to make significant investments in our corporate facilities and information technology infrastructure, with approximately $65.0 million of capital expenditures planned for the year ending December 31, 2011.
We currently plan to fund these expenditures in our North America and International segments with cash flows generated from the respective operations during this period. We also may use a portion of the net proceeds from this offering to fund these expenditures. We do not intend to pay dividends in the foreseeable future.
Cash Provided By (Used In) Operating Activities
Our net cash flow from operating, investing and financing activities for the periods below were as follows:
Year Ended December 31, Six Months Ended June 30, 2008 2009 2010 2010 2011 (in thousands) Cash provided by (used in): Operating activities $ (1,526) $ 7,510 $ 86,885 $ 15,528 $ 57,984 Investing activities (19) (1,961) (11,879) 1,869 (70,503) Financing activities 4,408 3,798 30,445 16,725 111,684 Effect of changes in exchange rates on cash and cash equivalents — — 1,069 (516) 7,095 Net increase in cash and cash equivalents $ 2,863 $ 9,347 $ 106,520 $ 33,606 $ 106,260
Cash Provided By (Used In) Operating Activities
Cash provided by (used in) operating activities primarily consists of our net loss adjusted for certain non-cash items, including depreciation and amortization, stock-based compensation, deferred income taxes, acquisition-related expenses and the effect of changes in working capital and other items.
Our current merchant arrangements are structured such that we collect cash up front when our customers purchase Groupons and make payments to most of our merchants at a subsequent date. Under our traditional merchant payment model, we pay our merchants in installments over a period of generally sixty days for all Groupons purchased. Under this payment model, merchants are paid regardless of whether the Groupon is redeemed. Under the redemption payment model, which we utilize in most of our international operations in conformity with local market practice, merchants are not paid until the customer redeems the Groupon that has been purchased. If a customer does not redeem the Groupon under this payment model, we retain all of the gross billings for the Groupon purchase. As a result of these payment models, we experience swings in merchant payable that can cause volatility in working capital levels and impact cash balances more or less than our operating income or loss would indicate. In general, merchant payable balances have increased in line with the growth of our overall business, which has created additional cash flow from operations. Furthermore, growth in our international operations has accelerated cash flow due to more favorable payment terms with our merchants. The redemption model generally improves our overall cash flow because we do not pay our merchants until the customer redeems the Groupon. To the extent we offer our merchants more favorable or accelerated payment terms or our gross billings does not continue to grow in the future, our cash flow could be adversely impacted.
For the six months ended June 30, 2011, our net cash provided by operating activities of $58.0 million consisted of net loss of $223.7 million, offset by $77.8 million in adjustments for non-cash items and $205.4 million in cash provided by changes in working capital and other activities. Adjustments for non-cash items primarily consisted of an increase in cash due to $57.6 million in stock-based compensation expense, $5.0 million in depreciation expense on property and equipment, $10.7 million in amortization of intangible assets and $8.8 million in losses in equity interests, partially offset by an excess tax benefit on stock-based compensation of $3.5 million and deferred income taxes of $2.2 million. The increase in cash resulting from changes in working capital activities primarily consisted of a $216.9 million increase in our merchant payable, due to the growth in the number of Groupons sold, and a $74.8 million increase in accrued expenses and other current liabilities primarily related to online marketing costs incurred to acquire subscribers and operational expenses such as payroll and benefits, customer refunds, costs associated with subscriber loyalty and reward programs, and a $1.6 million increase in other assets and liabilities. These increases were partially offset by a decrease in operating cash flow due to a $14.4 million decrease... continue reading the amended Groupon S-1.
All of the above demonstrates, per PrivCo.com Inc research, that Groupon is badly in need of cash, that its sold cash flow being "generated" is purely the result of short term delays in paying in merchats, as well as (for international sales) simply choosing to keep the entire sum of unused or exired Groupons, whether lawful in that country or not, and the cash shortage of which has been exacerbated - to say the least- by sending $941 million out the door to cash our founders and early investors. And the company now finds itself in a bit (or a lot) of a pickle.
Given Groupon's imminent liquidity crisis, PrivCo expects Groupon to regardless attempt to proceed with an IPO, although at a far lower valuation than its previously floated $30 billion. (Note: Update October 19, 2011: Groupon indeed is proceeding with an IPO attempt at a drastically slashed valuation of approximately $10 billion.)
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