Groupon has experienced plenty of stumbles on the way to its initial public offering next month – from dubious accounting techniques to overzealous comments by company officials.
In an online blog, titled Grumpy Old Accountants, Villanova business Prof. Anthony Catanach and Penn State accounting Prof. J. Edward Ketz, take the online coupon company to the woodshed.
“What stands out to us is that stockholders’ equity on September 30 is negative,” the duo writes. “The firm has become technically insolvent! Our prediction that Groupon has a high probability of failure remains intact.”
Catanach tells CNBC that while he doesn’t have the numbers at hand, he suspects that numerous companies poised for an IPO are near technical insolvency, meaning their liabilities are greater than their assets.
“After all, there is a reason they are going public. . . . They need to raise capital to execute their strategy,” he says.
“Groupon is a bit different, though, in that the company has been around a while, and clearly a main reason for the IPO is for the investor group to extract their value.”
Morningstar analyst Rick Summer has doubts about Groupon too. He recommends that investors stay away from the stock.
“In our view, Groupon has not carved out an economic moat,” Summer writes in a report.
One of his main worries is expenses. “We are increasingly concerned about the firm's sales, general, and administrative (SG&A) expenses, which represent a disproportionate percentage of overall costs to the firm.”
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