Groupon: Smartest Company Ever, or Dumbest? (Or Both?)

Few companies in the history of business have created the level of interest—as measured by excitement, skepticism, anger, and buzz—as Groupon. By some accounts the fastest-growing company in American history, Groupon is driving analysts and critics nuts with its strategy and business practices, which are either brilliant or crazy depending upon whom you're talking to.

Start with its product: deeply discounted online coupons for goods and services. Are they a blessing to consumers and businesses alike? A parasitic race to the bottom that destroys restaurants? A fad, or a fundamental paradigm-shifting change in the way that business is conducted?

Now, two new developments make an extremely confusing and controversial story, well, slightly more confusing and controversial. Keep in mind that the following two threads are more important because Groupon is headed toward an IPO. Never before has reading the tea leaves been more important for a large class of potential investors.

Development Number One: Groupon has moved beyond letting you eat $60 worth of sushi for $30 and has teamed up with a 61-unit New England supermarket chain to offer deals through the chain's loyalty cards. Could the future of Groupon be a series of longstanding alliances with big chains, supplementing and promoting already robust loyalty programs? Or is this basically irrelevant?

Development Number Two: Analysts and commentators have gone from skeptical of Groupon's business model to downright hostile. Search "Groupon" and "Ponzi Scheme" to start dipping into the pool of critics, but read Conor Sen's "Groupon Is Effectively Insolvent" for a particularly bitter brew of skeptical tea. Sen writes:

"[F]or Groupon there are all kinds of red flags. They have $290 million in current assets ($208 million in cash) and $520 million in current liabilities — current assets minus current liabilities puts them $230 million in the hole. This wouldn't be a problem except for the fact that they're wildly unprofitable, which we'll get to in a moment."

He follows up with a series of what seem to be interesting if not devastating questions:

"How can you possibly build a sustainable business by going from 0 to 8,000 employees in two years? Why did the COO and CTO both leave the company in late March, barely two months ago? How do you value a business that could do $3 billion in revenue this year but might not be able to keep the lights on in 12 months?"

Other analysts suggest that Groupon's IPO valuation "[isn't] rational math," that it "smells bad" (a columnist in the Financial Times), and that its revenue is facing a "steep decline."

Yeah, I dunno. There are a lot of stumpers floating around out there vis-à-vis Groupon, but history suggests that the financial pressure of an upcoming IPO will produce answers to at least a few of them.