About Us > Blog > The Real Economics of the Groupon IPO, Part 2

November 10, 2011

Does Groupon IPO math add up?  Ask the economic experts!  We continue from our last post to discuss valuation – something our economic consulting firm specializes in.

The valuation of a company is only as good as the data that supports it as well as the subjectivity of the individual performing the analysis.  If the data are flawed the valuation will surely be damaged.  In the case of Groupon the company has taken its share of criticism from the media and potential investors for a prospectus that required substantial revision to a core metric: how to measure its own revenue.

Last quarter, Groupon didn’t have enough money to cover its current debt to creditors, had negative earnings, and since then has seen a dramatic decline in subscribership rates likely due to new competition in this space.  Those factors, including the accounting revision, have changed Groupon’s enthusiastic valuation of $30 billion this summer down to an IPO valuation of $11.4 billion, although even that might change again.

Company valuation, like any asset, is only as good as the data the analysis is built on and an unbiased eye.  The value proposition becomes distorted when the information in those statements is built on bad data and in some cases bad assumptions.  In the case of Groupon, its initial IPO valuation could be a casualty of both.  Sound data and sound assumptions equal sound conclusions and that is the core of what we do at Edgeworth Economics.  

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