August 18, 2011, 11:54 AM — Ever since Groupon filed for an initial public offering in early June, the company has been criticized by analysts and tech writers for its heavy spending, growing debt and creative accounting.
One of the most consistent critics has been Henry Blodget's website, Business Insider. Just last week alone Business Insider published posts noting that Groupon's total active merchant contracts in North America declined in the second quarter and the company's large and mature Boston market is showing signs of deterioration.
Now Blodget himself is sounding the alarm that Groupon is facing a looming and potentially serious cash crunch:
As of last quarter, Groupon was still cash-flow positive. If it remains that way until after the IPO, the cash situation won't become critical. If the company stumbles, however, or the economy suddenly turns south, Groupon could get into serious trouble in a hurry.
Blodget notes that, based on Groupon's amended S-1 filed with the Securities and Exchange Commission on Aug. 10, "as of June 30, Groupon owed $392 million to merchants for old Groupons--way more than the $225 million of cash the company had on hand."
Groupon hasn't set a date yet for its IPO, which it hopes will raise up to $750 million, but CNBC last month reported that sources say the company hopes to launch its offering in mid to late September.
The underwriters have an interesting call to make. Now isn't a great time for an IPO, but the longer Groupon waits, the more pressing its cash situation becomes (though it also can tap into the private-share market). Further, it runs the risk of devaluing its offering if it issues another quarterly report showing weaknesses in its business model or operations.