Manchester Interactive Marketing take a deeper look into Groupon’s cash flow

PRLog (Press Release) - Aug. 30, 2011 - Groupon's cash cushion relative to its liabilities is small and Manchester Interactive Marketing takes a look at how the gap between the two is going the wrong way, very quickly. According to Businessinsider.com, last quarter Groupon was still cash-flow positive. If the economy suddenly turns south, Groupon could get into serious trouble in a hurry. Things look fine on the surface, in June the company had £136M in cash and they are able to generate cash while losing money because it collects cash from daily deals the moment it sells them and doesn't have to pay some of the cash to merchants until 60 days later. When the company is growing rapidly, it generates a lot more cash from new Groupon sales than it has to pay out to redeem old sales. Right now, they are growing so quickly that this "float" creates positive cash flow even though the company is losing money.

Manchester Interactive Marketing addresses that as of June 30th, Groupon had £410M in current liabilities and bills the company has to pay. Meanwhile, they only had £227M of present assets with which to pay them. In other words, if Groupon had been liquidated as of June 30, they would have had a net of £183M of bills that they would have been unable to pay: a working capital deficit. Companies can operate with a working capital deficit as long as they have another source of money to cover the bills as they come due. At the moment Groupon has this source of cash: rapidly growing Groupon sales. As long as they sell enough new daily deals in one quarter to pay all the bills it racked up in the prior quarter, they will not need additional cash. But if the company's growth slows, or if competitive pressure leads to their gross profit margin getting pressed, look out. Under those scenarios, the company may not be able to make enough new sales to pay off its old bills, and Manchester Interactive Marketing believe they will then face a serious cash issues.

Groupon need to step up their game in the upcoming quarter to remain cash rich, Manchester Interactive Marketing think as long as they keep releasing the best deals they will keep their head above water, and if not, then maybe we will be seeing a daily deal for the price of buying out Groupon.

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Manchester Interactive Marketing is a leading sales and marketing company based in Manchester. http://www.manchesterinteractivemarketing.co.uk/