Why Groupon Is Poised For Collapse • Hacker News Board

Re: Why Groupon Is Poised For Collapse

#31

Post by jtbigwoo » Mon, Jun 13, 2011, 6:10 PM UTC

arturadib wrote: post #16

Insightful article, but notice that the business model being criticized is in many ways well known (and successful): namely, that of book publishers. When an author deals with a book publisher, he/she gives up some of their future revenues in exchange for cash in advance and publicity. Likewise, when a local business deals with Groupon, they are giving up part of their revenue in exchange for upfront cash and publici…

> namely, that of book publishers

It's entirely different, actually. The risk to publishers is much lower because the book publisher, not the author, control the means of printing the books. In Groupon's case, Groupon would be like a publisher paying in advance to a printing company. There's nothing wrong with such an arrangement, but those that invest in the publisher should acknowledge the risk that the printer will go out of business before delivering. It's doubly risky if the payment terms ensure that the printer will lose money on each book printed.

Re: Why Groupon Is Poised For Collapse

#32

Post by DrJokepu » Mon, Jun 13, 2011, 6:10 PM UTC

ChuckFrank wrote: post #18

cletus wrote: post #11

This is one of the best and most damning analyses of Groupon I've seen yet, which is kinda surprising coming from TC but I guess it is a guest post. The biggest parts of this are the account risk, the needing to grow revenue to pay existing liabilities (which is and should be a huge warning flag for any enterprise) and just how much room there is for someone to do this better. My only fear is that a collapse of Group…

Based upon the mounting evidence about the condition of Groupon, cletus' fear "that a collapse of Groupon--which I actually see as a non unrealistic possibility--will taint other Internet/tech IPOs and, even worse, prompt the Federal government into more kneejerk regulation even stupider and more onerous than Sarbanes-Oxley." makes absolutely no sense. Suggesting that a poorly performing companies weak IPO, or otherw…

Why does not it make sense?

Re: Why Groupon Is Poised For Collapse

#33

Post by [deleted] » Mon, Jun 13, 2011, 6:11 PM UTC

[deleted]

Re: Why Groupon Is Poised For Collapse

#34

Post by raganwald » Mon, Jun 13, 2011, 6:13 PM UTC

lichichen wrote: post #30

HN: just out of curiosity is there any examples of companies that have tanked based on speculation of failure regardless of track records? Ie: Speculation leads to lower investor confidence leading to pulling out of investments and so on so forth

When you say "regardless of track record," what is being discussed Ad Nauseum is whether Groupon has a track record of success or not. This is different than a company that has a consensus track record of success but is battling some unrelated speculation.

It's almost the other way around: Groupon spends $1.43 to buy $1.00 of revenue, but boosters are speculating that they can pivot their model or harvest more revenue from their merchants and email list to make $1.44 revenue from every $1.43 they spend.

Re: Why Groupon Is Poised For Collapse

#35

Post by wccrawford » Mon, Jun 13, 2011, 6:15 PM UTC

brk wrote: post #13

wccrawford wrote: post #10

Earlier quoted context omitted.

That's almost always the case with coupons, though. Sure, you can exclude current customers under some coupon schemes, but you risk alienating them... And losing an existing customer is costly, since you put so much into gaining them in the first place.

Right, but a "$2 off your next $20 order" coupon is much much different than a "$19 off your next $20 order" Groupon.

If you don't like the terms, don't sign up for it. As I said, Groupon isn't magic. Making a bad deal with them will not magically turn into a good deal. You have to use Groupon as a tool, not a genie.

Re: Why Groupon Is Poised For Collapse

#36

Post by SwellJoe » Mon, Jun 13, 2011, 6:21 PM UTC

cletus wrote: post #25

ChuckFrank wrote: post #18

Earlier quoted context omitted.

Based upon the mounting evidence about the condition of Groupon, cletus' fear "that a collapse of Groupon--which I actually see as a non unrealistic possibility--will taint other Internet/tech IPOs and, even worse, prompt the Federal government into more kneejerk regulation even stupider and more onerous than Sarbanes-Oxley." makes absolutely no sense. Suggesting that a poorly performing companies weak IPO, or otherw…

Imagine a worst case scenario where Groupon files for Chapter 11 and defaults on all outstanding debts to merchants, which by that stage could amount to over a billion dollars (IIRC it's currently $280 million). Imagine that because of that lost revenue many small businesses end up collapsing. At the same time it becomes more public knowledge that 2010 funding rounds were to buy out early investors, who made out like…

I think the more dangerous result will be that the scheme continues to "work" for another couple of years, a half dozen competitors come along and run the same basic scheme (with tweaks to make the new businesses "unique"; maybe they go for particular niches currently unserved or whatever), those companies also have explosive IPOs, and then the whole thing comes crashing down in a couple more years when the IPO money runs out.

One company with a 280 million dollar bankruptcy (or, more realistically, by the time of the IPO it will be a few billion dollars) isn't going to make a big dent in how the markets work. But, a half dozen such companies in the same boat when the bottom falls out of the market and the fallout for all of the companies that they suckered into taking these deals, could very well lead to something scary enough to get regulators and legislators involved.

It's plausible, if not entirely likely, that Groupon, and their ilk, could very well kill IPOs for the rest of us for yet another decade.

Re: Why Groupon Is Poised For Collapse

#37

Post by ChuckFrank » Mon, Jun 13, 2011, 6:21 PM UTC

cletus wrote: post #25

ChuckFrank wrote: post #18

Earlier quoted context omitted.

Based upon the mounting evidence about the condition of Groupon, cletus' fear "that a collapse of Groupon--which I actually see as a non unrealistic possibility--will taint other Internet/tech IPOs and, even worse, prompt the Federal government into more kneejerk regulation even stupider and more onerous than Sarbanes-Oxley." makes absolutely no sense. Suggesting that a poorly performing companies weak IPO, or otherw…

Imagine a worst case scenario where Groupon files for Chapter 11 and defaults on all outstanding debts to merchants, which by that stage could amount to over a billion dollars (IIRC it's currently $280 million). Imagine that because of that lost revenue many small businesses end up collapsing. At the same time it becomes more public knowledge that 2010 funding rounds were to buy out early investors, who made out like…

I misunderstood. I thought you were saying that a weak IPO would result in additional regulations. I thought you were saying that it is in the tech segments best interest for solid IPO launches, so as to not taint other future IPO companies. And I was saying that the opposite was true, overinflated, unsubstantiated, and unsecured IPO will expose the industry to greater enforced accountability.

As for the worst case scenario, for the sake of all the small business 'investors' in Groupon (though I'm not sure that they actually realize their participation), I certainly hope that something like this doesn't happen.

However, considering the ugly and apparently underhanded 2010 funding play, some investigations may be in order.

Besides which, the chairman of Groupon is already Mr. Class Action Lawsuit. So, based upon previous performance, one can likely predict future results in this case.

Re: Why Groupon Is Poised For Collapse

#38

Post by justin_vanw » Mon, Jun 13, 2011, 6:29 PM UTC

It's almost absurd how closely Groupon is following the classic 'tech bubble' road to disaster.

1. Hype (check)

2. IPO talk (check)

3. Turn down acquisition at incredibly high P/E (check)

4. Superbowl Advert (check)

5. IPO just in time to avoid running out of money (on the way)

6. Market goes rational (inevitable, forces pushing it irrational can't do so forever), valuation plumets

7. Unable to raise money by selling stock, and a business model of 'sell stock to pay bills while making no profit', bankruptcy is announced

8. The talking heads repeat the mantra "nobody saw it coming" for the next 6 months.

Re: Why Groupon Is Poised For Collapse

#39

Post by jbooth » Mon, Jun 13, 2011, 6:30 PM UTC

cletus wrote: post #25

ChuckFrank wrote: post #18

Earlier quoted context omitted.

Based upon the mounting evidence about the condition of Groupon, cletus' fear "that a collapse of Groupon--which I actually see as a non unrealistic possibility--will taint other Internet/tech IPOs and, even worse, prompt the Federal government into more kneejerk regulation even stupider and more onerous than Sarbanes-Oxley." makes absolutely no sense. Suggesting that a poorly performing companies weak IPO, or otherw…

Imagine a worst case scenario where Groupon files for Chapter 11 and defaults on all outstanding debts to merchants, which by that stage could amount to over a billion dollars (IIRC it's currently $280 million). Imagine that because of that lost revenue many small businesses end up collapsing. At the same time it becomes more public knowledge that 2010 funding rounds were to buy out early investors, who made out like…

There's a huge difference between this and Enron/Worldcom, which inspired Sarbanes Oxley.

The latter two committed actual fraud. As in, this article would be saying "Wow, Groupon is hugely profitable" rather than the press we're seeing now.

Re: Why Groupon Is Poised For Collapse

#40

Post by eurohacker » Mon, Jun 13, 2011, 6:32 PM UTC

cletus wrote: post #25

ChuckFrank wrote: post #18

Earlier quoted context omitted.

Based upon the mounting evidence about the condition of Groupon, cletus' fear "that a collapse of Groupon--which I actually see as a non unrealistic possibility--will taint other Internet/tech IPOs and, even worse, prompt the Federal government into more kneejerk regulation even stupider and more onerous than Sarbanes-Oxley." makes absolutely no sense. Suggesting that a poorly performing companies weak IPO, or otherw…

Imagine a worst case scenario where Groupon files for Chapter 11 and defaults on all outstanding debts to merchants, which by that stage could amount to over a billion dollars (IIRC it's currently $280 million). Imagine that because of that lost revenue many small businesses end up collapsing. At the same time it becomes more public knowledge that 2010 funding rounds were to buy out early investors, who made out like…

how can banks invest their pension funds clients money in Groupon shares anyway - without responsibility for the losses

shouldnt it be illegal by law to invest pension funds in startups - especially in startups having some of the ugliest balance sheets on earth