When Jersey City-based “search engine” Accoona filed its IPO prospectus, our initial take was that investors should run away screaming. After spending a half-hour or so looking through the prospectus, we see little that makes us more enthusiastic.
- Accoona describes itself as being in three businesses: lead-gen, search, and e-commerce. The first two businesses are listed first, presumably because they’re sexier, but make no mistake: Accoona is an e-commerce company: 97.5% of revenue in Q1 came from selling consumer electronics and home appliances (an awful business without massive scale, which Accoona lacks). There’s also some sort of an incipient China business, which is apparently REALLY sexy.
- Accoona appears to generate a gross margin of less than 10% on its e-commerce business. It’s hard to make money at that gross margin, and Accoona isn’t. In fact, the company burned $13 million from operations in Q1, on about $38 million of revenue. Anyone who expects the company to ever turn profitable in this business is dreaming. Accoona’s eCommerce division should be sold immediately.
- The company’s advertising businesses (lead-gen and search) generated a whopping $0.9 million of revenue in Q1, with some of the increase coming from an acquisition. Revenue from the company’s search engine, meanwhile, declined.
There is good news: The company recently hired a new CEO, Valentine J. Zammit, who has lots of experience and is respected by some people we know. It remains to be seen what Mr. Zammit can do with Accoona, however, and in the meantime it is positively frightening.
Oh, and did we mention that the IPO is an auction — run by an underwriter called Maxim Group?