I can agree that the market is over-valuing coupons.com, but not with the overall emphasis on past profits in IPOs. "But they're losing money and hugely over-valued!" is a sentiment I hear a lot from traders and observers who deal in established companies, but it may or may not apply to IPOs and new companies.
Coupons.com has been around for a long time (1998), and if it hasn't figured out a way to be profitable in 15 years I don't think a cash infusion is going to help. I don't see any evidence of a new product or service or a new revenue stream. In fact I'd bet against coupons.com growing as users become weary (for the non-technical) and wary (places like HN) of additional browser addons.
COUP aside, sometimes it's wise to ignore profits in an IPO. Emerging markets, new technologies, and early-stage high-growth startups are good examples.
For example, Tesla lost over 55 million the year before its IPO.[1] Some said the shares were too high, but it paid off[2] for those who saw the potential. Musk pointed this out himself:
"A lot of people were puzzled about why we were going public without profits,” Musk told reporters outside the Nasdaq building in Times Square. “The reason we are not profitable today is because we are in the midst of expanding with the Model S."
New product, new market, growing company. Check. Proven management team with realistic expectations and a strong proof-of-concept? Check.
In Tesla's case it makes sense to ignore past losses and bet on the long play. While coupons.com could become profitable, I'll be shocked if the premium paid on this IPO pays off.
I really don't think that it's fair to compare Tesla with Coupons.com. Tesla has net assets of $2.4 billion, with IP that's worth a considerable amount. This is evidence to show that it may be worth investing. What does coupons.com have? A failing 16 year old business that hasn't once turned a profit?
Edit: Just noticed you said COUP aside. I agree with you – the comparisons from tech or unprofitable IPOs don't add up.
TSLA, FB, AMZN &etc are still all being >80% valuated on potential. We can quibble about whether COUP deserves to be be given the honor of having that valuation model, but the fact is that the world doesn't have a great standard model for how much a bird in the bush should be worth relative to one in your hand, but the markets seem to be pricing in one-to-one for some of these growth stocks.
The real litmus test is whether high-growth companies' revenue-exceeding expenditure has mostly been invested in developing a unique product that should be a cash cow in future (Tesla R&D) or in acquiring customers which tend not to have a reason to stick around (Groupon)
I agree that COUP is overvalued, but I do not like this superficial stock analysis. A lot more goes into evaluating growth stocks. One has to consider the trajectory the company is going on, how likely it is it will continue on this trajectory, when things will plateau, etc. You can't just say "its not making money therefore it is a sell." Well you can, but you won't be a very good growth investor. You might be one of the many people that refused to buy google at $100 because their P/E was insanely high.
Looking at COUP's S1 I can say a couple of nice things about them. They are showing good topline growth. Their gross margins are expanding. Their net margins (while negative) are improving very fast. From 2012 to 2013 they grew their revenues by almost 50% while they actually reduced their operating expenses. But most importantly, their revenue growth is accelerating.
If they continue posting higher and higher revenue growth and expanding growth margins, they may start gushing money in a couple of years.
As I said they are not for me. I am not sure they can continue high revenue growth for long because they do not seem to have a good lasting competitive advantage. But I can see how someone may be convinced to buy them.
My take in bubbleness is people moving to California for the express reason of working in a startup. If you're doing that because you're an entrepreneurial type and you want to learn about the ins and outs of running a company and your not a stranger to hard work, rapidly changing priorities, and the journey is its own reward, great. But if you're doing that because "startups are cool" and "Man, you get in early and suddenly bam! your like a zillionaire even if you're the Janitor, dude, sign me up!" Well you're chasing a bubble not a career :-). The saddest part for me in the late 90's was the influx of business majors who were going to 'show up how its done' as opposed to problem solvers and team builders.
That said, I'm feeling like there are more and more people in the bay area at least for the wrong reasons. And I for one, having lived through the first bubble, have been milking it rather than going all in (bought some FB when it got down to $18 and sold it once it crossed $36. bought some Tesla, sold it when it doubled) took the money out and put it in more diversified things (like index funds). Its boring, you don't make the 'big score' but when the music stops, and the music always stops, this time it won't all evaporate. At least that is what I keep telling myself :-)
>The saddest part for me in the late 90's was the influx of business majors who were going to 'show up how its done' as opposed to problem solvers and team builders.
Funny, the saddest part for me, both in the late 90s and today, are the "Tech Stars" who are living high on the hog on other people's money, with some pipe dream of getting bought out and no plan to run a real, viable, sustainable business. Their businesses implode, they get "rich" (through money and contacts) and move on to the next project.
Laugh all you want at the MBAs, but I can assure you that they, at the very least, understand that the purpose of a business is to create value for customers and generate a return for stakeholders. I think "Silicon Valley" could have used a bit more of that sort of thinking then, as perhaps more so today.
I think that 'ninja/rockstar/ego-driven' technologists are sad in their own way. Somewhat differently than unseasoned MBAs though. There was a joke that was old even when I moved to the Bay Area in the 80's that you knew you were a 'successful' engineer when companies issued a press release that you had joined them, but they had no idea what you were going to do for them. And like most jokes there was a painful truth that for some people it really is all about them.
That said, I find it is also easy for me to fall into the trap of looking primarily at the excesses and sillyness and overlooking the cool things that get built. One of my long time friends is working at Intuitive Surgical and they are doing some really innovative and cool stuff that is not at all frivolous.
That's why you need an entrepreneur that has both skills (biz & tech). Engineering chops to execute (code) their dreams and business sense to make sure that they are building something that creates value for customers and not a hobby.
"But like so many other companies in these golden times, Coupons.com simply told investors to exclude about $13 million of normal everyday expenses and, abracadabra, it claims to be profitable on a nonstandard, cockamamie "adjusted Ebitda" basis. It's all part of the show."
My impression is that Groupon made up their own mumbo jumbo financial metrics, but that adjusted EBITDA is a pretty standard financial metric.
adjusted EBITDA is a pretty standard financial metric
No... EBITDA is already "adjusted earnings". Adjusted EBITDA is "Adjusted, Adjusted" earnings. Or more correctedly <opportunistically> Adjusted Earnings.
EBITDA is already opportunistically adjusted, it's just that people more or less agree which "bad" numbers get excluded.
I understand the argument though. EBITDA is somewhat closer to $income - $cost. Whereas actual earnings involve tax, tax loopholes, exchange rates, and loads of other crap.
The adjusted EBITDA the author talks about is on page 12 of the S-1 filing[0]. The largest items that take the $11M net loss to positive EBITDA is $7M of depreciation & amortization and $5M of stock based compensation.
>>> The worst thing you could do is have a denominator in your price-to-earnings ratio that's greater than zero, because then your ratio would be positive, assuming your stock hasn't gone to zero yet.
I've always wondered why folks don't use earnings-to-price ratio instead, which goes smoothly through zero instead of behaving, well, hyperbolically.
When a company like this goes public, do they have to include in their filing specifically which channels are driving revenue? For example, do they mention what % of Coupons.com revenue is from SEO vs. SEM vs. Email Marketing vs. Direct traffic - or does Wall Street just understand all that as one big "Internet" channel?
The question is, which one is a bigger stinker, coupons.com or retailmenot? Both make a significant portion of their revenue ranking organically on Google for other big companies' name. What happens when this traffic shrinks or is lost?
As an investor I am very concerned when a company publicly publishes that they make tens of millions or hundreds of millions of dollars off of a free stream of traffic from Google. Companies can establish a brand from that position, but its ultimately their financials which determine their long term survival. Zynga offers an alternative example, grew very fast due to a never to be repeated level of free visibility on Facebook's news feeds. Multi-billion dollar mobile gaming companies are in very similar positions today.
I'm not saying these companies or websites are worthless, but the valuations are insane for the risk they entail. High valuations make companies spend more and borrow more than they should.
Does a company own their user base? That is a pretty good indicator of long term viability. Ironically, Microsoft of the 90s looks like a fairly friendly neighbor in comparison to the "platforms" software businesses are built upon today.
Correct me if I'm wrong, but Retailmenot's business model is drawing in people seeking discount codes and then tags their affiliate codes when the user clicks through to site to actually make a purchase.
Coupon.com's business model is to be the online distributor of manufacturer and store coupons. I'd have to think Coupon.com's revenue comes more from manufactures and stores licensing / paying for inclusion on the Coupon.com website than from affiliate marketing.
Retailmenot is getting 73% of its total traffic from search and Coupons.com is less than half of that at 35%.
I think Coupons.com also has a more engaged audien than Retailmenot and a large network of coupon bloggers promoting the product and participating as affiliates.
RetailMeNot serves digital coupon codes and focuses on SEO to get traffic to their site.
Coupons.com serves manufacturer grocery coupons distributed via printable means (browser plugin) and digital via retailer loyalty card integration. They have relationships with manufacturers & retailers to discount products through retail chains. Furthermore, Coupons.com also has a digital coupon codes side of the business which competes with RetailMeNot, Affiliate program called Brandcaster which many bloggers use and few other smaller channels.
I hope this brings some clarity to the discussions in this thread and folks can see that Coupons.com is not just a website.
Yes, I agree. The flip side is that retailmenot is profitable while coupons.com is not. Neither would be in good shape if they lost their free traffic. Can coupons.com still support their affiliate/referral payments if they lost the x% of revenue they don't have to pay much for?
My (relatively weak) understanding is that they'll disclose that information in their S-1. They'll also have to make a bunch of disclosures about risks to their business (IE: "Google changes their algorithms which materially impacts a core part of our business.")
You should not compare Coupons.com to Groupon. Different businesses. Groupon sells deals - you have to put money upfront i.e. commit to a discount. Coupons.com prints money in the form of %/$ off discounts. No need to commit any money even after you acquire a coupon from Coupons.com.
Coupons.com has been around for a long time (1998), and if it hasn't figured out a way to be profitable in 15 years I don't think a cash infusion is going to help. I don't see any evidence of a new product or service or a new revenue stream. In fact I'd bet against coupons.com growing as users become weary (for the non-technical) and wary (places like HN) of additional browser addons.
COUP aside, sometimes it's wise to ignore profits in an IPO. Emerging markets, new technologies, and early-stage high-growth startups are good examples.
For example, Tesla lost over 55 million the year before its IPO.[1] Some said the shares were too high, but it paid off[2] for those who saw the potential. Musk pointed this out himself:
"A lot of people were puzzled about why we were going public without profits,” Musk told reporters outside the Nasdaq building in Times Square. “The reason we are not profitable today is because we are in the midst of expanding with the Model S."
New product, new market, growing company. Check. Proven management team with realistic expectations and a strong proof-of-concept? Check.
In Tesla's case it makes sense to ignore past losses and bet on the long play. While coupons.com could become profitable, I'll be shocked if the premium paid on this IPO pays off.
[1] http://www.wired.com/autopia/2010/06/tesla-ipo-raises-226-1-... [2] https://www.google.com/finance?q=tesla