Posts
Expensive Lessons, But Then Most Market Lessons are Expensive
Groupon is a company that invented a new business, the business of e-mail direct Internet coupons. The business model is very simple. Groupon signs up merchants in various locations, offers a coupon for sale via e-mail to consumers in those locations and splits the proceeds with the merchant. Groupon gets a lot of money, the merchant gets customers who are still paying a good buck for the goods and services and the new customer base. The customer gets a good deal. Everybody wins, right!
Well that was conventional wisdom, and Groupon’s early investors and founders thought so, so much that they turned down a $6 billion offer from Google and decided they would go public because they thought the business was worth $20 billion. So what has happened since they did go public?
Groupon shares now have the dubious distinction of having fallen below their IPO price.
They’re down 14% at last check — for the day, that is — at $17.34 a share, below their IPO price of $20.
And somewhere out there is a poor sucker who bought that stock around its opening-day peak on Nov. 4 of $31.14. That’s only a loss of about 43%.
So what happened? Well first of all Groupon is not making any money. And companies that don’t make money usually are not worth $20 billion, or $12 billion or even $1 billion. But the big problem is this. There is no protection for the Groupon business model. Anyone who can hire a sales force, some programmers and rent some time on servers can get into this business. There is no advantage to being a national company, the markets are local.
The only advantage Groupon has is if their name becomes synonymous with the business, much the way Google has become a generic name for an Internet search. But even so, is that going to be worth very much? If Groupon ultimately tanks, and the company ends up being valued at a couple of millions, or even a couple of hundred million, and investors lose big time, well, at least they have the lessons they will have learned from all of this. That should mean something. And if a Time Machine is ever invented the Groupon founders are going to be first in line to go back to the day before that Google offer expired.
The founders have already siphoned $1 billion out of the company and will have the opportunity to siphon more out via the public markets. The Google offer wasn't for cash. GRPN shares can be sold for cash so long as suckers are available. Therefore the GRPN founders will not be regretting their decision to turn Google away.
ReplyDeleteI understand. Groupon securitizes discount coupons and everybody gets rich.
ReplyDeleteI, along with my full time real day job, am a partner in a retail business and Groupon and their competition are the ones that are making the money. We have used their services before and it is NOT to our benefit. Customers use it because people are so strained for cash and credit that I can't upsell, thus after the fees, I don't do it anymore. The decision to decline the $6 billion offer should be a csae study in corporate stupidity, greed and our current selfish myopic attitude at the C-Level officers and the general populace, but we know that won't happen. More important, like the bailout of Wall Street A-holes that bankrupted their companies, I expect no one will lose their job for such greedy stupidity.
ReplyDelete