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Why Groupon Is Poised For Collapse

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Re: Why Groupon Is Poised For Collapse

#101

Post by Terry_B »

forgingahead wrote: post #96
Terry_B wrote: post #88

I got stung the other day by a Groupon clone here in Australia. My wife asked me to buy the daily deal, which I did, without checking it properly. The business in question doesn't exist. Looks like the daily deal company did absolutely no checking that it was legit or the business did as this article suggests and knew they were going bankrupt anyway. I started asking around and found a few similar stories from friend…

Well that's fraud on an entirely different level from what this article suggests, but that's still crummy. Which clone was it?

Absolutely, but it's quite likely that it highlights a systemic problem with this type of business which the article discusses. Shadier business owners can abuse it.

Rhymes with Groupon.

Re: Why Groupon Is Poised For Collapse

#102

Post by dkrich »

ajays wrote: post #28

One thing that a lot of analyses fail to account for are the number of Groupons that go unused. I would love to see some figures on how many Groupons are never redeemed (for whatever reason). I had some friends visiting SF, and they had bought Groupons from various outfits for the trip. But they ended up not using a few of them, and gave them to me. Chances are I'll end up using them, but I wonder: how many such Grou…

What difference does it make? Sure, on one Groupon promotion a few unused coupons can mitigate losses on the deal overall, but make no mistake about it- businesses use Groupon because it is a cool, hot, marketing play that allows them to be lazy and bring in a ton of foot traffic.

The root of the problem, and the reason Groupon's model is unsustainablem, is that most of these businesses are not producing a product that is different or so unbelievably valuable that people are going to continue to come in and buy it at a price that is profitable in the long run. People go to a coffee shop because it is close and convenient. All coffee shops serve a commodity that is in a price range that varies by only a few cents. Their only way to differentiate is with location. Period. With restaurants it's a little different because food costs and quality vary a bit more, but I still maintain that the only people who regularly buy Groupons are deal-hunting cheapskates who won't be back regularly. All businesses would do better to focus on their core products and pricing, and let word of mouth do the rest.

For a coffee shop owner to run a Groupon promotion to bring in foot traffic thinking it will pay off is lazy, stupid, and shows very poor business acumen.

Re: Why Groupon Is Poised For Collapse

#103

Post by justin_vanw »

dxbydt wrote: post #89
justin_vanw wrote: post #76

Earlier quoted context omitted.

I wouldn't claim that the market generally is efficient, but I strongly suspect that it a lot like Brownian Motion. No observer could possibly predict which direction it will jump next, but the overall parameters are determined in some fundamental way. I call this Brownian because to someone observing the motion of a single atom, it appears random, but it is entirely determined by the motion and position of other ato…

" I strongly suspect that it a lot like Brownian Motion" 1.Mkt isn't like BM. BM permits -ve values & any market index say SPY must be non-negative. 2. We (quants) model market indices like SPY as a log-normal process like so : dS = r S dt + sigma S dz where S = underlying ( or market index ) dS = change in S, dt = change in time r = risk free interest rate ( about 0.03 % currently ) dz = normally distributed rv with…

"Otherwise why have APT, CAPM, covariance matrices, factor models..."

So are you saying you consistently outperform the market? If not, what are you 'modeling'? In 'science', a model is considered useful in how well it predicts the observations of some experiment, especially experiments on effects which were not known when the model was created. What do your bragged about models predict? What are they good for besides talking about with other quants?

Re: Why Groupon Is Poised For Collapse

#104

Post by justin_vanw »

encoderer wrote: post #93
justin_vanw wrote: post #77

Earlier quoted context omitted.

This same argument applies if I were to convince 1M people to each give me $1000, all on one day, I would go from 0 to $1B in revenue in one day. The thing is, it still applies if I take that $1B and burn it in a big bonfire. I suspect you must see why your statement isn't convincing now, right? If I raised a few hundred million dollars, I could create a website where you went, and gave your credit card number. I wou…

As sensational as your statement is, it has absolutely no relevance to the analysis of Groupon as a business. Groupon believes they have a reliable fix on the Customer Lifetime Value. Some very smart investors who have done _actual_ analysis of Groupon (including the team that did due diligence for Google when they made the buyout offer earlier this year) clearly have at least some faith in these CLV numbers. All of…

You're missing my point. I was assailing your (poor) logic in my reply to your criticism, not making a point about Groupon.

You were saying that I was wrong, just look at their revenue. I replied, revenue doesn't mean anything, it's easy to build a giant revenue machine. Your point was crap. Now you are coming up with all sorts of other facts and analysis, which is certainly much more valuable than your original "just look at all that juicy revenue" argument. Again, I was pointing out how terrible and stupid the 'look at all that revenue' argument was by showing I could create another company with even more revenue that is even more worthless. If you have an issue with this, I would stop using revenue as a basis for anything since it is a shit indicator.

Again, GM has MASSIVE revenue, that has no bearing on how good of an investment it would be.

Re: Why Groupon Is Poised For Collapse

#105

Post by wisty »

joe_the_user wrote: post #81
cletus wrote: post #53

Earlier quoted context omitted.

> 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…

"Lots of businesses have excess capacity that costs them nothing to utilize" Yes, This is one of the most dubious Groupon "sells". There are a very small class of businesses that excess capacity which costs nothing to use. These mostly the type of business where you're just consuming an "experience" - adult classes, skydiving school, etc. Unfortunately, a big part of business, classes, is already competing with the I…

Not really. Often, food is 30%, staff is 30%, rent is 30% and 10% goes to the owners (who are paying for a 300k fitout). Coffee markups can be even crazier. Obviously, it depends on the restaurant. A good value steak-house might sell a steak, chips, and veggies where the food costs 70% of the meal; but they have large volumes and hope to sell lots of drinks.

Anyway ... the staff and building sit idle for a lot of the time. On a Friday night, there's lots of people. But on a Tuesday at 4pm, there won't be a lot of customers.

I guess you could look for chefs that only wants to work from 11-2 and 5-8, Friday and Saturday, but most chefs want to work 5 days a week.

Re: Why Groupon Is Poised For Collapse

#106

Post by sunchild »

jacques_chester wrote: post #98
sunchild wrote: post #92

Earlier quoted context omitted.

It would be very poor business to count that money as revenue. If anything, that money is in escrow. The float value might be significant at Groupon's volumes, but it's just plain sleazy to count unredeemed voucher proceeds as revenue. Also, it sounds like you're saying that the Groupon Promise is not honored. I wouldn't be at all surprised to see that tested in court soon, too.

I am not an accountant, but I imagine it has to be booked as revenue in an accrual system on a per-period basis. To satisfy double-entry, it would originally be booked as cash and a liability. Take magazine subscriptions. You pay $240 for an annual subscription to Frisbee Fancier's Magazine at the start of the year. They book this: Cash at Bank: $240 - Magazines Owed: - $240 Then they send you the January edition ("G…

Accounting tap-dancing. It still nets to zero income unless the contingency is lifted.

Re: Why Groupon Is Poised For Collapse

#107

Post by meric »

justin_vanw wrote: post #103
dxbydt wrote: post #89

Earlier quoted context omitted.

" I strongly suspect that it a lot like Brownian Motion" 1.Mkt isn't like BM. BM permits -ve values & any market index say SPY must be non-negative. 2. We (quants) model market indices like SPY as a log-normal process like so : dS = r S dt + sigma S dz where S = underlying ( or market index ) dS = change in S, dt = change in time r = risk free interest rate ( about 0.03 % currently ) dz = normally distributed rv with…

"Otherwise why have APT, CAPM, covariance matrices, factor models..." So are you saying you consistently outperform the market? If not, what are you 'modeling'? In 'science', a model is considered useful in how well it predicts the observations of some experiment, especially experiments on effects which were not known when the model was created. What do your bragged about models predict? What are they good for beside…

The CAPM tells you how "risky" a company is depending on its historical market returns; E.g. A manufacturing company is likely more risky than a retailer because the former's previous market returns vary more than the latter's.

Re: Why Groupon Is Poised For Collapse

#109

Post by encoderer »

justin_vanw wrote: post #104
encoderer wrote: post #93

Earlier quoted context omitted.

As sensational as your statement is, it has absolutely no relevance to the analysis of Groupon as a business. Groupon believes they have a reliable fix on the Customer Lifetime Value. Some very smart investors who have done _actual_ analysis of Groupon (including the team that did due diligence for Google when they made the buyout offer earlier this year) clearly have at least some faith in these CLV numbers. All of…

You're missing my point. I was assailing your (poor) logic in my reply to your criticism, not making a point about Groupon. You were saying that I was wrong, just look at their revenue. I replied, revenue doesn't mean anything, it's easy to build a giant revenue machine. Your point was crap. Now you are coming up with all sorts of other facts and analysis, which is certainly much more valuable than your original "jus…

Oh please. So you weren't actually saying that Groupon is in poor shape, you were just debating me for debating's sake?

And that when I pulled out "other facts and analysis" -- like the fact that Groupon must feel they're doing the right thing by spending a ton of money to grow their customer base (duh) -- you've got nothing to say?

And you really think in your post that you were "showing you could create another company with even more revenue?" Because what you're missing is you made up a fantasy example and you're calling it a counterpoint. It had no merit and was nothing but empty calories.

But people are investing a lot of money in Groupon. And their revenue growth that you dismiss is no small part of that, Justin.

Do you have any idea how rare a billion dollar business is?

Look at my comment history. I've got a long history here of reasonable discussion. But you've brought nothing to the table here. You've made no cogent argument.

Re: Why Groupon Is Poised For Collapse

#110

Post by nkurz »

wisty wrote: post #105
joe_the_user wrote: post #81

Earlier quoted context omitted.

"Lots of businesses have excess capacity that costs them nothing to utilize" Yes, This is one of the most dubious Groupon "sells". There are a very small class of businesses that excess capacity which costs nothing to use. These mostly the type of business where you're just consuming an "experience" - adult classes, skydiving school, etc. Unfortunately, a big part of business, classes, is already competing with the I…

Not really. Often, food is 30%, staff is 30%, rent is 30% and 10% goes to the owners (who are paying for a 300k fitout). Coffee markups can be even crazier. Obviously, it depends on the restaurant. A good value steak-house might sell a steak, chips, and veggies where the food costs 70% of the meal; but they have large volumes and hope to sell lots of drinks. Anyway ... the staff and building sit idle for a lot of the…

You sound very authoritative, but some of your numbers seem odd. Do you have a source for your 30% rent figure? Most sources I see suggest a much lower number: http://www.4hoteliers.com/4hots_fshw.php?mwi=1661
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