

Dot-Com IPO Insanity Returns With Coupons.com - adventured
http://www.bloombergview.com/articles/2014-03-07/dot-com-ipo-insanity-returns-with-coupons-com

======
ignostic
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.

[1] [http://www.wired.com/autopia/2010/06/tesla-ipo-
raises-226-1-...](http://www.wired.com/autopia/2010/06/tesla-ipo-
raises-226-1-million/) [2]
[https://www.google.com/finance?q=tesla](https://www.google.com/finance?q=tesla)

~~~
tonyhb
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.

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hristov
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.

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ChuckMcM
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 :-)

~~~
hnnewguy
> _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.

~~~
ChuckMcM
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.

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mastermojo
"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.

~~~
001sky
_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.

~~~
waps
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.

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Nicholas_C
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.

[0][http://www.sec.gov/Archives/edgar/data/1115128/0001193125140...](http://www.sec.gov/Archives/edgar/data/1115128/000119312514066562/d612699ds1a.htm)

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analog31
>>> 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.

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cheriot
If anyone wants to read the filings for themselves:

Coupons.com
[http://www.wellreadinvestor.com/companies/63241](http://www.wellreadinvestor.com/companies/63241)

Groupon
[http://www.wellreadinvestor.com/companies/10946](http://www.wellreadinvestor.com/companies/10946)

~~~
semerda
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.

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trg2
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?

~~~
AJ007
Here is a hint:
[http://www.similarweb.com/website/coupons.com](http://www.similarweb.com/website/coupons.com)

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.

~~~
ssharp
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.

~~~
AJ007
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?

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BrandonM
Is it coincidence that their stock ticker is COUP?
[http://dictionary.reference.com/browse/coup](http://dictionary.reference.com/browse/coup)

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stefan_kendall3
Is this any more insane that $CRM? Quarter after quarter of losses, and the
market cap has been all over the place.

