IPO jitters: Is Groupon 'effectively insolvent'?

As part of an IPO filing expected to raise $750 million, Groupon has released financial details that have caused much consternation in some corners of the tech world, and cast doubts on Groupon's success story. It turns out that Groupon spends a lot more money than it makes, has a pile of debt, and has used investment cash to buy shares from its founders. Do the "troubling trends" at Groupon spell doom for the daily deals service? Or are critics being unfair in slamming the company?

Groupon is "effectively insolvent": Strictly in terms of sales, Groupon may be the fastest-growing company in American history, but that doesn't mean it's in stable financial condition, says Conor Sen at Minyanville. In fact, Groupon is "hemorrhaging money," and operates "like a Ponzi scheme that needs constant infusions of cash to stay afloat." The company "owes $230 million more than it has," which is a problem, since it's "wildly unprofitable." And "most concerning of all," Groupon has used hundreds of millions of dollars from new investors to buy shares from its founders and early backers.

"Groupon is effectively insolvent"

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Groupon isn't dead... yet: It's "premature" to say Groupon is doomed, but the company is clearly "in a fairly precarious financial position," says Kevin Kelleher in Fortune. "Groupon is burning through cash," as it spends heavily on marketing and sales in an aggressive effort to grow. Plus, it's clear that "lining the founders' pockets is all Groupon cares about." A rushed IPO makes it seem "as if the company is acting in desperation." And "when the CEO suggests in the stock prospectus that he wants out, it should make shareholders think hard about whether they want to get in."

"Does Mason want to get out of Groupon?"

"The reports of Groupon's death are greatly exaggerated": Much of this sniping is "unfounded," says Vinicius Vacanti at Business Insider. Plenty of local merchants are eager to work with Groupon, which has already built an impressive lead in the daily deals business. Competitors will have a hard time catching up. And as for the insiders who are being criticized for selling some of their shares, it would be financially "irresponsible" of them to not cash out some of their holdings. Remember, they still have "the vast majority of their wealth" invested in the company.

"The reports of Groupon's death are greatly exaggerated"