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Groupon stock
11-28-2011, 03:56 PM, (This post was last modified: 11-28-2011, 03:57 PM by Miguel.)
#1
Groupon stock
Quote:Groupon gets local merchants to offer steep discounts to large clusters of consumers (via email), a concept that turned it into one of the world’s fastest growing companies. Founded in 2008, Groupon is on pace to generate more than $1.5 billion in revenue this year, primarily from commissions it gets from deals sold. Google Inc., which runs the Internet’s largest advertising network, had annual revenue of just $86 million at the same stage of its existence.

Google once offered $6 billion for Groupon. They passed, instead choosing to go public in an Initial Public Offering (IPO). Along the way, they stated their numbers in a manner that wasn't consistent with standard accounting practices in order to make the company look better. They went public earlier this month, offering a limited amount of stock at $20 a share, which would put the value of the business at $13 billion.

Thing is, the company is losing hundreds of millions of dollars. And that doesn't look to change.

Problems with the business model:

- Low barriers to entry. I could put together a list of Haley fans and send them offers. Merchants can do the same. So can Amazon and Google, and they have.

- Massive manpower requirements. They are creating ads for local merchants on a daily basis. That means they require a large staff to create the ads and call on the merchants. They presently have 10,400 employees. After three years, Google had fewer than 300 (because they are a true tech company).

- No point of differentiation. Shortly before the IPO, the New York Times wrote an article about The Voice, which is what Groupon calls the zany, irrelevant tone of its advertising copy. One of their execs claimed this as their point of differentiation. According to him, people on their list making six figures didn't need $20 off a dinner, they subscribed to read that glorious copy. Never mind a basic tenet of direct response advertising is the offer matters most. (The list you're mailing to is the next most important factor. Buried in the disclosures for their IPO is the fact 80% of the people on their list have never responded to one of their offers).

THE BIGGEST PROBLEM:

- They're killing their customers. People think of Groupon as a consumer-facing company. But they make their money from the merchants that run the ads. Groupon takes up to half the price of the coupon, so if an Italian restaurant is offering $50 worth of food for $25, the merchant gets just $12.50. It's a money-losing proposition for most. But many take the risk thinking it's worth spending the money to gain new customers. But it turns out bargain hunters are not particularly loyal to any merchant. As a result, Groupon is unlikely to have much repeat business and it will become harder to sell new merchants as word spreads about the often disastrous results former clients have experienced.

NOT SURPRISINGLY THEN

[Image: grouponstock2.jpg]

[Image: grouponstock.jpg]

Groupon execs, early investors and the investment banks knew these flaws. But they ignored them in order to pimp the stock and make quick millions. They'll walk away filthy rich for their part in promoting this flawed company.









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11-28-2011, 06:56 PM, (This post was last modified: 11-28-2011, 06:57 PM by My Alter Ego.)
#2
RE: Groupon stock
[quote='Miguel' pid='1360' dateline='1322517408']
Quote:Groupon execs, early investors and the investment banks knew these flaws. But they ignored them in order to pimp the stock and make quick millions. They'll walk away filthy rich for their part in promoting this flawed company.

Hmmm -- and, boys and girls, what from a recent past, does this remind us of?

Sheesh, does no one learn?
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