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Groupon’s Strikeouts Reveal an Unspoken Truth

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Re: Groupon’s Strikeouts Reveal an Unspoken Truth

#31

Post by raganwald »

jeremymims wrote: post #27
raganwald wrote: post #24

Earlier quoted context omitted.

it's insane not to see that marketing expenses will drop and that they can be comfortably profitable. Look, projections based on assumptions are part of the investing game. And while I appreciate your enthusiasm, the likelihood that you are correct is not the point. The point is, there is already an existing method of disclosing assumptions and projections for the future, it's called a pro-forma financial statement .…

I'm actually not defending this particular accounting method since I expect they've filed proper paperwork that explains all their income, expenditures, profit, taxes, etc. What I'm defending Groupon against (not that they need me) is the ridiculous pot shots at their business model as of late and that somehow they're trying to scam people (You'll probably see a few show up in the comments today). They've grown a phe…

I get that you are defending their business model, thanks. The whole point of starting a business is to lose money today building an asset that will make money tomorrow, so what's wrong with that?

In days of yore, companies would not go public until they were actually making money, but tail fins fell out of favor, and conservative investing went with it.

All I am saying is that they should use standard financial tools when promoting their business to investors. I am sure that plenty of people, possibly yourself included, will be just as bullish on their prospects.

Re: Groupon’s Strikeouts Reveal an Unspoken Truth

#32

Post by ramanujan »

raganwald wrote: post #11
dodo53 wrote: post #6

I don't really get why it's a big deal. They have to report the normal net loss, and the amount and categories of things they're excluding is public knowledge so why does it matter if they decide to come up with a possibly not-useful metric - isn't it Invetor-Beware on whether to consider that metric or not?

Imagine, if you will, a one-hundred page prospectus. One hundred pages of facts twisted beyond all manner of reason, with pie crust promises of castles in the sky. Buried within those pages are the SEC-mandated numbers you need to compare this company to any other company trading on thhe exchange. Now imagine every company does this, but each in their own way with their own entirely orthogonal way of presenting their…

Definitely agree that standardization of financial metrics is highly useful for comparing across companies.

Strongly disagree that the SEC or any government agency can be relied upon for anything related to "trust" in this space. Did Sarbanes-Oxley prevent the financial crisis? The SEC is just about building Maginot Lines. Caveat emptor has and remains the operative guidance for investors.

Private ratings agencies have had a poor track record of late, but they are at least somewhat more reliable in that they aren't completely under the thumb of the US government.

Re: Groupon’s Strikeouts Reveal an Unspoken Truth

#33

Post by joshklein »

Without more telling numbers around customer behavior, these numbers aren't particularly relevant. What we really need to know is what their customer churn is - what percentage of merchants use the service again? What percentage of consumers use the service again?

If their churn is very low, the adjusted CSOI numbers are interesting to look at (once acquired, customers stick around for awhile and have a positive lifetime value). If their churn is very high, welcome back to the 2001 bubble. The fundamental question about a business at this scale isn't so much whether they are making or losing money, but whether anyone actually wants what they're selling (at a price higher than what it costs to deliver). It really isn't rocket surgery.

Or their business model is to sell irrational exuberance and cash out before anyone notices. That's also a viable business model.

Re: Groupon’s Strikeouts Reveal an Unspoken Truth

#34

Post by sc68cal »

joshklein wrote: post #33

Without more telling numbers around customer behavior, these numbers aren't particularly relevant. What we really need to know is what their customer churn is - what percentage of merchants use the service again? What percentage of consumers use the service again? If their churn is very low, the adjusted CSOI numbers are interesting to look at (once acquired, customers stick around for awhile and have a positive life…

Or their business model is to sell irrational exuberance and cash out before anyone notices.

Don't forget that they hid $36.2 million in stock-based compensation as part of this accounting trick.

Re: Groupon’s Strikeouts Reveal an Unspoken Truth

#35

Post by raganwald »

ramanujan wrote: post #32
raganwald wrote: post #11

Earlier quoted context omitted.

Imagine, if you will, a one-hundred page prospectus. One hundred pages of facts twisted beyond all manner of reason, with pie crust promises of castles in the sky. Buried within those pages are the SEC-mandated numbers you need to compare this company to any other company trading on thhe exchange. Now imagine every company does this, but each in their own way with their own entirely orthogonal way of presenting their…

Definitely agree that standardization of financial metrics is highly useful for comparing across companies. Strongly disagree that the SEC or any government agency can be relied upon for anything related to "trust" in this space. Did Sarbanes-Oxley prevent the financial crisis? The SEC is just about building Maginot Lines. Caveat emptor has and remains the operative guidance for investors. Private ratings agencies ha…

So long as we understand that I never suggested that prudent investing relies on the investor performing their own careful appraisal of the investment or relies on a regulatory agency--of any kind--screening investments.

Re: Groupon’s Strikeouts Reveal an Unspoken Truth

#36

Post by damoncali »

jeremymims wrote: post #9

Groupon has more than 100 million subscribers (mostly in America). If we assume that the total available market is another 50 million or so signups in the US, then these loss leader marketing expenses will drop dramatically (no need to offer $10 for a friend that buys a $5 deal). The attempt of this metric is to explain what their business looks like in another year or so when they've reached some level market satura…

Anyone with a brain will look at the marketing expense numbers and make a bet as to their relevance and size going forward.

Dropping them completely and saying "look - we're profitable if you assume our customer acquisition cost is zero" seems pretty dumb. How, exactly, are we to assume their marketing numbers will drop at all? It is a sales-driven organization, no?

I'm not sure I'd call it slimy, as the article implies. But I would call it irrelevant. It's not like they're extracting some subtlety from the numbers that is not already well described by GAAP.

Re: Groupon’s Strikeouts Reveal an Unspoken Truth

#37

Post by damoncali »

dodo53 wrote: post #6

I don't really get why it's a big deal. They have to report the normal net loss, and the amount and categories of things they're excluding is public knowledge so why does it matter if they decide to come up with a possibly not-useful metric - isn't it Invetor-Beware on whether to consider that metric or not?

You're right. They have to report the "legit" numbers. But - there is a section in the reports with all manner of notes and hand waving that accompany these reports.

It's a tough call. GAAP isn't going to adequately explain the nuance of every business, so notes are appropriate to explain things better.

But, bankers and accountants take advantage of this and twist the notes beyond sane bounds in an effort to make the earnings look good. Taken too far, this behavior can invalidate the accounting reports, making them totally opaque.

There isn't a right or wrong answer here. This example, I think, is pretty silly - as it's not a difficult thing to glean this info from the standard reports. But there are cases where strange accounting practices are good and helpful because underlying business is itself strange.

Re: Groupon’s Strikeouts Reveal an Unspoken Truth

#38

Post by dagw »

jeremymims wrote: post #9

Groupon has more than 100 million subscribers (mostly in America). If we assume that the total available market is another 50 million or so signups in the US, then these loss leader marketing expenses will drop dramatically (no need to offer $10 for a friend that buys a $5 deal). The attempt of this metric is to explain what their business looks like in another year or so when they've reached some level market satura…

Most groupon subscribers I know (including myself), are super active for the first couple of month after signing up, and then forget all about it. If this is any sort of indication of a more general trend then they'll probably have to keep that marketing expense high for the foreseeable future. Not only to capture new users, but once they reach saturation, they'll have to refocus their marketing towards reminding their older subscribers to come back and keep using them.

Re: Groupon’s Strikeouts Reveal an Unspoken Truth

#39

Post by damoncali »

sc68cal wrote: post #34
joshklein wrote: post #33

Without more telling numbers around customer behavior, these numbers aren't particularly relevant. What we really need to know is what their customer churn is - what percentage of merchants use the service again? What percentage of consumers use the service again? If their churn is very low, the adjusted CSOI numbers are interesting to look at (once acquired, customers stick around for awhile and have a positive life…

Or their business model is to sell irrational exuberance and cash out before anyone notices. Don't forget that they hid $36.2 million in stock-based compensation as part of this accounting trick.

"Hid" is a strong word. They're basically trying to sell this idea:

"We won't need much marketing, nor will we be offering significant equity compensation in the future. Acquisitions are a "one-time" thing. Therefore, our long term profitability is looking pretty good."

We, as investors, are welcome to accept that reasoning or not. I think it's pretty weak. Others will disagree. But it's pretty plainly stated. (If anything in a financial report can be considered "plain").

Edit: I'd love to hear why I"m wrong about this from someone who down-voted. Am I missing something?

Re: Groupon’s Strikeouts Reveal an Unspoken Truth

#40

Post by eavc »

WillyF wrote: post #29

Oddly enough, there actually is a baseball statistic that takes strikeouts out of the equation. It also takes out home runs. It's called Batting Average on Balls In Play or BABIP. You can see the formula here: http://en.wikipedia.org/wiki/Batting_average_on_balls_in_pla... BABIP doesn't tell you a ton about a player's overall performance, but it does tell you how lucky they've been if you compare it to their historic…

I'm a big fan of the BABIP against stat for pitchers for the same reason.

It's amazing to see how good a pitcher can look when his fielders are getting to everything only to have him fall of the table when the law of averages kicks in the next season.

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