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Why Groupon Is Poised For Collapse

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Re: Why Groupon Is Poised For Collapse

#61

Post by gaius »

encoderer wrote: post #57
justin_vanw wrote: post #38

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…

You left out "generate massive sums of actual revenue from real, paying customers, and become the fastest growing company by revenue in history." I think a bunch of armchair analysts on this thread are going overboard with their predictions of imminent failure.

Groupon spends $1.43 for every $1 in revenue. Hell they could just not do any business and increase their revenue 43% overnight...

Re: Why Groupon Is Poised For Collapse

#62

Post by pemulis »

cletus wrote: post #53
justin_vanw wrote: post #48

Earlier quoted context omitted.

This is just 'the sky is falling' thinking. If groupon defaults, the businesses will just not honor the groupon coupons. After all, they haven't been paid for. The entire hypothesis of this article is that Groupon amounts to a marketing firm where you pay most of the cost in kind much later, instead of paying up front for a big marketing campaign. The 'in kind and later' part makes your scenario absurd. However, I th…

> Lots of businesses have excess capacity that costs them nothing to utilize. I dispute this assertion or, in the very least, see this as being far more complex than you suggest, for two reasons: 1. Customers who might otherwise pay full price will end up using these deals, which is a direct loss to the business; and 2. The inventory may be used up by such offers to such an extent that customers who might otherwise p…

3. Most of the people redeeming Groupons will come at peak hours, so you still have excess capacity at slow hours. If Groupon Now (or something similar) catches on, that might solve the problem of excess capacity, but Groupon Classic does not.

Re: Why Groupon Is Poised For Collapse

#63

Post by encoderer »

Spyplane wrote: post #3
JacobAldridge wrote: post #2

I don't know if it convinces me that Groupon is "poised for collapse", but it certainly exposes several risks in the business model (for Groupon, the merchant, and the consumer), as well as how competitors can take advantage of those.

When you look at the $1bil they made last year in funding, and what amount they listed in their IPO paperwork, they certainly look and feel like a ponzi scheme. I hope they are not, but it feels that way. I'm staying as far away from that stock as possible.

This is true only if you make up a new definition of "ponzi scheme."

I disputed this same point last week: http://news.ycombinator.com/item?id=2617760

Re: Why Groupon Is Poised For Collapse

#64

Post by tokenadult »

I think this is the most interesting paragraph in the submitted article: "As critical as I am of Groupon, the slam dunk case is to sign up with Groupon if you’re going bankrupt. I strongly encourage every business that is about to go under to call Groupon. (Don’t tell them Rocky sent you.) It makes total financial sense--as a Hail Mary play. If you’re lucky, the upfront cash will be enough to help you stay afloat. If not, well, you were already going out of business. It may be your best option. In the short term, you’re actually helping Groupon because they’re being valued on revenue and no one is taking into account risk."

If word of this gets around, the incentives set up by the typical Groupon agreement with a merchant will be responded to by merchants for whom those incentives are the most perverse. Groupon may discover that it is inexorably moving into the business of last-ditch financing for failing businesses.

Re: Why Groupon Is Poised For Collapse

#65

Post by jaredsohn »

gaius wrote: post #61
encoderer wrote: post #57

Earlier quoted context omitted.

You left out "generate massive sums of actual revenue from real, paying customers, and become the fastest growing company by revenue in history." I think a bunch of armchair analysts on this thread are going overboard with their predictions of imminent failure.

Groupon spends $1.43 for every $1 in revenue. Hell they could just not do any business and increase their revenue 43% overnight...

No; that would increase their profit at the expense of revenue.

Re: Why Groupon Is Poised For Collapse

#66

Post by ig1 »

powera wrote: post #42
ig1 wrote: post #20

All these attacks rest on the assumption that Groupon aren't going to change their business model at all. It's seems a near certainty that they're going to move into the dynamic yield management business which is likely to be highly profitable. For a lot of businesses their excess capacity is a lost cost anyway. They have to pay their staff regardless or not they do work. A customer might cost $X to service, but that…

I'm sorry, but justifying a $15 Billion (with a B) valuation on a business that Groupon isn't even in yet is pointless. It smacks of Enron, to be honest.

What percentage of Amazon's income comes from Book sales ?

A large amount of Amazon's valuation came from the fact that they'd be able to extend and become the dominant online retailer in a huge number of product categories.

Re: Why Groupon Is Poised For Collapse

#67

Post by tomp »

commandar wrote: post #54
tomp wrote: post #29

Earlier quoted context omitted.

Except for the upfront payment, which is obviously a sunk cost, book publishers have no other liability. Unlike Groupon, which might have to reimburse its customers if a client business goes under. Furthermore, AFAIK author deals are screened/filtered, a bad book will not get published (not that this is a 100% accurate process, see for example 4 Hour Work Week). Judging from the article, Groupon does little screening…

>(not that this is a 100% accurate process, see for example 4 Hour Work Week). While I got a chuckle out of this, given the financial success of the book, it's a good book from the publisher's perspective.

Actually, that's exactly what I meant. I can't remeber where I read it, but Tim claimed that many publishers rejected him, before he found that one that wouldn't. Or am I thinking of the wrong title?

Re: Why Groupon Is Poised For Collapse

#68

Post by mkn »

justin_vanw wrote: post #38

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…

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

It's a nitpick, but the only irrationality that gets checked is unsustainable irrationality. It's a bit of a simplification to say that profits are actually "equilibrium irrationality," but not by much. If the market were actually composed of rational agents, all prices would be driven down to material cost + wages, and there'd be no need for advertising, either. Forces can, and in fact always do, push the market to irrationality. The only thing the market seems to do is moderate the degree of irrational excess.

I'm not really going anywhere with this. I just have a fascination with people's manifold faith in markets and their powers. It's interesting that "free market theory" flatters consumers (as rational) and benefits businesses (via consumer irrationality). I think that this is why the notion survives so well in popular culture.

Re: Why Groupon Is Poised For Collapse

#69

Post by rsynnott »

encoderer wrote: post #57
justin_vanw wrote: post #38

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…

You left out "generate massive sums of actual revenue from real, paying customers, and become the fastest growing company by revenue in history." I think a bunch of armchair analysts on this thread are going overboard with their predictions of imminent failure.

Ah, revenue. Yes, I remember this from last time round; revenue is what matters, regardless of the costs involved in producing that revenue, or its uncertain future footing. Right.

Re: Why Groupon Is Poised For Collapse

#70

Post by rsheridan6 »

Is it even established that companies lose money on Groupon customers? I usually spend over the face value on a Groupon, so the restaurant gets (bill - (value of groupon/2)). If the profit on a dinner for two is more than half the value of the groupon, which seems plausible, they're not losing money.

Then there are the people who never redeem their groupons. I'm about to move to another and leave two groupons that I never got around to using unredeemed.

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