It actually reminds me more of a gOvt jobs creation program. But yeah, I'd short the hell out of this stock. I bet Goldman did the IPO for better info on pricing the CDS
Given the transaction costs of credit swaps, it doesn't make sense to trade them for companies as small as Groupon. That's why there are credit indexes, and Groupon is not part of any AFACT. They are definitely way too small for single name credit swaps.
I don't even think they have any outstanding marketable debt instruments.
The NYT is reporting [1] that Groupon was only (!) $1M from breaking even in the third quarter, in part because marketing expenses were sharply reduced.
Also, apparently they're not allowing any current shareholders to sell during the IPO. Fine for Mason and the Lefkofskys, who took a pile of money off the table early, but if I were an early employee I would be livid.
As far as I can tell, (my unscientific, anecdotal survey of) tech industry sentiment is that Groupon makes no money and general consumer sentiment is that they make a decent amount. It will be interesting to see which side wins out.
The tech industry has gone over the financials. The consumer sentiment comes from the fact that they see it a lot, and therefore it must be making lots of money. I'm not sure that these two things compare very directly....
Of course they did. Question is, is that “organic” slowing of marketing spend because they are able to leverage their existing relationships and customer base to make money? Or is this just a way of making the company appear to lose less money in the short term to appease the critics?
Now if you’ll excuse me, I have popcorn on the stove, gotta run.
This is a fascinating thing to watch... IF it IPO's at that amount, all of the VC's of the last round would have just broken even on their investment -
Morgan Stanley Venture Partners, Fidelity Ventures, Andreessen Horowitz, Greylock Partners, Kleiner Perkins Caufield & Byers, Maverick Capital, Silver Lake Partners, Technology Crossover Ventures.
Quite a list.
NEA, Brad and Eric make a killing, and Accel and Battery have a decent return on it.
The VCs aren't in the business to break even on their investment. They'll hold at least some of the stock.
I personally think it'll be a good long-term investment. Connecting online and offline behavior for small businesses - that's gold. The current state of the industry might be irrational, but so was internet advertising in the 1990s.
It's a solid business, sure, but look at the risk level of the investment and not just the business. The long-term stock market average is around 7% (and you can always invest there instead). A hot technology IPO like this is risky. What kind of a premium do you demand for taking this risk? You don't just buy a hot stock and expect its price to sit there; they have Treasury bonds for that.
How much growth do they need to pull off 7%+ return on your investment? Do you think that's realistic, given the competition and the amount they're spending on acquiring customers? Or have they already priced in most of that growth, leaving very little for you?
If you don't have a numerical answer for these questions, you're gambling, not investing.
They seem to be growing while gradually reducing their marketing spend, just as they said they would while everyone was hemming and hawing about their "horrible burn rate."
As they've said, the spend was about growing a huge list, which would create the kind of barrier to entry that so many skeptics have been saying they desperately need. Now that they have a massive list and are getting closer to having most of the deal-seekers accounted for, they can slow down on acquiring new people for the list and focus on converting on the giant list they already have.
I'm not saying they, or their IPO, will be particularly successful (I have no idea), but the reactionary criticism that has plagued them surely took a hit following their filing today.
For one, their list is public. Nobody else needs to generate leads - and these are already qualified as being willing to buy a similar service. Simply scrape the list of companies offering coupons.
Second, they can't enforce a monopoly. Companies will offer coupons through all available players and keep track of the performance of each individually. They'll always be actively competed against by competitors who can copy any of their good ideas without being locked into any of their bad ideas.
Third, deal seekers are notoriously willing to comparison shop. There's absolutely nothing keeping them at Groupon. All the coupon shoppers I know use multiple sites, it's part of the fun.
How is their list public? I don't know what you mean, but I would be interested to know more. I wouldn't think they would be allowed to make their list public.
They don't need a "monopoly" any more than Amazon does; they just need to be the go-to place that therefor gets the broadest range of good deals, has the most relationships, the biggest list, etc.
people can comparison shop to an extent, but so what. Again, I can look at ecommerce sites besides Amazon. But as they grew and became synonymous with their category, more and more reasons not to waste time elsewhere stacked up. Who knows if Groupon Now or Products or whatever else will be successful, but it seems like they are spending a lot of time and energy building stuff to make it harder to compete with them, yet at the same time being attacked for not being profitable enough yet.
Their specific mailing list isn't public, but the list of their customers is, inherently, and anyone can call and ask for the person in charge of coupons. And it's not an either-or thing, so it's a trivial sale.
Businesses will offer better deals through companies that cost less to use. Groupon's cut limits how good the deal can be for the customer, and is money that could be spent on more effective targeted advertising.
Groupon is actually harder to use than traditional coupons, for business and consumer. With traditional coupons you take it in, or print it, or take a picture of it, and present it for your reward. With Groupon you have to put out money up front and businesses don't get it till later. Good for Groupon, not at all useful for anyone else.
Buying a TV from amazon is a different type of purchase than buying a coupon, especially because many coupons are free. Coupon shoppers will subscribe to any list they see that offers a good deal.
They aren't being attacked for not being profitable, they're being attacked for valuing themselves at over eleven billion dollars despite not having been out of the red, let alone healthily in the black.
Their value, considered rationally, is what it would cost to technically recreate them, plus the value in their name and customer list. The later is available, the former is in the ballpark of $300K-$2M, and their name isn't worth $11 billion no matter how you look at it.
Weak analysis. The first point doesn't make sense. The email list is definitely not public. No, it's not a monopoly but it does have monopoly-like qualities (consumers go where deals are, businesses go where consumers are). Third, coupon shoppers do not dictate where the deals originate. Is the fastest growing business in the history of the world, one grossing $430 million/quarter (mind that this is the lower number), worth $11b? Apparently, yes. And I suspect it will both raise that number as well as pop at the opening.
> Weak analysis. The first point doesn't make sense.
Not at all. You just didn't get it at first glance.
The email list itself isn't public, but by its very nature, use of Groupon is. Anyone who wants to market to those customers can just email marketing@groupon's.customer.com and find a qualified and interested customer - just itching to save more money. Groupon's chunk is HUGE for what they provide.
> consumers go where deals are, businesses go where consumers are
It's not that anyone goes, that's so bricks and mortar it's funny. Nobody (who likes coupons) is put out by reading another page or another email. They seek this stuff out. It's what they do. And businesses don't need to "go" anywhere either. They simply file exactly the same coupon on two sites, like a person selling a couch on craigslist and kijiji.
As for their gross, wake me when they've got a net that isn't an accounting error. They're approximately 13 billion years from earning that $11 billion market cap if you're speaking actual money, that they have to make. And that's before anyone investing will see a nickel of profit.
I too though, suspect that number will go up wildly.
Which of course will pay the initial investors a ton of money, driving the value higher as all the late-to-the-party investors jump in hoping for their piece. It should sustain a round or two of this. The good ones do.
Every bit of consolidation in the market - and there's going to be a lot more consolidation - drops Groupon's customer acquisition cost, as less companies compete for the same inventory.
In the meantime they've built up an incredible amount of in-house traffic-buying expertise. In their unprofitable push to get huge, Groupon bought every type of ad unit available. I wish I had a sliver of the data available to their ad buyers.
"The current state of the industry might be irrational, but so was internet advertising in the 1990s."
That doesn't say anything about their future worth though. Just because Google cracked the online advertising nut didn't make those who blazed the trail first and stumbled before them suddenly worth a ton of money. Quite the opposite, in fact.
