Groupon worth a mere $540 million if you subtract its cash position

This post is not investment advice, does not contain investment advice, and if you take it as investment advice, TNW will chuckle at you.

Groupon, once heralded as a revolution in advertising and local commerce, is undergoing a beating in the public market. At the time of writing, the firm is trading at $2.69, or exactly 10% of its 52 week high of $26.90. Putting that another way: Groupon has lost 90% of its peak valuation.

And this from a newly public company that has been public for a year and a week. That’s a stiff, painful decline.

What is causing the selloff? There are a number of answers; Groupon, now beaten to a valuation below $2 billion, is an unusual company. It’s problems have been myriad, but from a certain perspective it has become a company that may be undervalued. I know that sounds like a bit much, but let’s take this walk together in small steps.

Revenue Growth

Groupon did not go public on the back of a proven string of profitable quarters. In fact, in its year ago third quarter, Groupon lost more than $50 million. Not exactly the stuff of Graham and Buffett.

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The company went public on the power of its revenue growth; Groupon, often called the ‘fastest growing company of all time,’ launched an IPO because it was growing in leaps and bounds that investors found very appealing. After spurning a $6 billion deal with Google, Groupon went public with a bang.

That bang has since become a slow fizzle.

Key to Groupon’s rough year and falling stock price is its lack of revenue growth. Here are the figures that matter most:

• Q3 2011: $430 million in revenue
• Q4 2011: $492 million in revenue
• Q1 2012: $559 million in revenue
• Q2 2012: $568 million in revenue
• Q3 2012: $569 million in revenue

Investors had expected revenue of $591 million for the third quarter of 2012, and after the company missed that mark sent its stock down 30% in the following day’s trading. TNW called it a ‘shellacking.’

For the fourth quarter, what does the company expect?

For the coming quarter, Groupon expects revenues to fall between $625 million and $675 million. At the high-end, that would be a 37% gain on last year’s Q4. Including $30 million in stock-based compensation, Groupon expects to earn between $0 and $20 million in the quarter.

In short, Groupon expects – on a sequential quarterly basis – its revenues to rise 9.8% to 18.6%. It also anticipates a profit on what appears to be a GAAP basis, and a larger one on a non-GAAP basis if stock based competition wasn’t counted.

A company in a tailspin? No. The fastest growing company in the world? Not any more, at least.

The cash trail

Groupon is worth $1.74 billion, based on its current market capitalization. Groupon also has $1.2 billion in cash, meaning that its every share is backed by a firm dose of cash. There are 654,900,000 shares of Groupon in the world, meaning that each share has about $1.83 stapled to it.

And at its current share price of $2.69, that is a large portion of its total market capitalization. In fact, if you discount its cash from its market capitalization, the market is essentially valuing Groupon at $540 million dollars.

If I was to offer you a firm with revenues over $2 billion annually, no long-term debt, growing revenues – at last – and profits that could stray as high as the lowest of the nine figure range, you would expect to pay more than a half billion.

Therefore, from a very select perspective, Groupon is undervalued; a firm quarter’s revenue growth attached to any sort of profitability would certainly hearten investors.

Issues remain

Problems remain for the company. It has to find its next billion in revenue, even as its core product, daily deals, ages. At the same time, it has to rewrite the narrative that surrounds the firm. Despite is ample cash position and improving business prospects and performance – less than 12 months ago its internal financial controls were a mess and causing it endless headaches as it tried to grow up and behave like a public company – Groupon has the smell of tailspin to it, earned or not.

And, the company’s cash position must be weighed against its running short-term liabilities, including required payouts to vendors. A rough look at where the firm stands is simple:

• Total assets: $2.03 billion
• Total liabilities: $1.23 billion

The company sans its cash is current valued at $0.86 per share. It’s been a long, bumpy ride from its 52 week highs, but Groupon may have found its bottom at last. It can only lose so much more ground until it trades for its cash, valuing the firm’s continuing business at essentially zero.

The company is off another 3.44% today. We’ll see what happens next.

Top Image Credit: TechCrunch