Source: Groupon Doesn't Have The Cash to Build Its New Data Center
In the run up to its recent IPO, a number of outlets reported that the daily deal giant Groupon was running short on cash. Over at the Motley Fool, Evan Niu noted that the company had $243.9 million in cash and equivalents …
Context & Ripple Effects
Groupon's cash position has been a running story since before its November IPO: after a $500 million investment disclosed in December 2010 and a raise of roughly a billion dollars in January 2011, Business Insider warned in August that the company was running low on cash. The company went public anyway on NASDAQ at a $17.8B market cap, closing its first day at $26.11, 30.6% above the $20 offer price.
Now a source tells Betabeat that Groupon doesn't have the cash to build its planned new data center, pointing to Motley Fool's Evan Niu's tally of $243.9 million in cash and equivalents. The claim is unconfirmed, but it lands on a company that public-market skeptics had already flagged as burning money faster than its deal business replenishes it.
First-order effects
- If the sourcing holds, Groupon's data-center plan shifts from building to renting or delaying — a capital-allocation decision made weeks into life as a public company whose investors were told to watch the burn rate.
- The report hands bears like the June 'pass on this deal' camp fresh evidence that the IPO priced a marketing-heavy business model, not an infrastructure owner.
Second-order effects
- Colocation and cloud providers stand to pick up capacity demand that Groupon won't self-build, trading one-time capex for recurring operating expense on Groupon's books.
- Larger rivals competing for the same local-deal merchants can now point to their own infrastructure depth while Groupon must fend them off under Eric Lefkofsky's profitability push.
Third-order effects
- For the post-IPO consumer-internet class of 2011, the episode frames data centers as a balance-sheet question: companies without Groupon-scale cash rent compute rather than own it, pushing the build-versus-lease line further toward leasing.
- If unconfirmed cash-shortage reports keep attaching to newly public names, expect underwriters and later-stage investors to scrutinize infrastructure commitments as closely as revenue growth.
The trend: Consumer-internet companies emerging from the 2011 IPO window are choosing rented infrastructure over owned data centers as cash burn becomes a public-market liability.