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The Fall of Groupon: Is the Daily-Deals Site Running Out of Cash?

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Re: The Fall of Groupon: Is the Daily-Deals Site Running Out of Cash?

#41

Post by ForrestN »

pbreit wrote: post #37
ForrestN wrote: post #34

The competition for most outlandish criticism of Groupon is getting really boring. All of these articles ignore the same basic facts. Groupon is spending a huge amount on customer acquisition. They've stated numerous times that this is a short-term competitive play, to try to create as much of an advantage as possible to counteract the dozens of clones by building up their brand awareness and subscriber list. The ide…

Why is a good post like this downvoted? I know HNers tend to disagree but the sentiment is for the most part spot on. Groupon is not a ponzi scheme. It operates like any other business that buys from vendors on net 60 terms. It can obviously dial down on acquisition spending and be left with a fabulously valuable asset of 100+ million opted-in subscribers/accounts. A list that it can market to very inexpensively.

Thanks for the support. Clearly I have yet to master the paradigm of "adding value" that classifies it's increasingly clear that groupon is essentially a ponzi scheme with some graphic design. can't wait for the post mortem documentary a la "the smartest guys in the room" as more valuable than my comment. Will continue to try and adapt to the local culture.

Re: The Fall of Groupon: Is the Daily-Deals Site Running Out of Cash?

#42

Post by pbreit »

ForrestN wrote: post #41
pbreit wrote: post #37

Earlier quoted context omitted.

Why is a good post like this downvoted? I know HNers tend to disagree but the sentiment is for the most part spot on. Groupon is not a ponzi scheme. It operates like any other business that buys from vendors on net 60 terms. It can obviously dial down on acquisition spending and be left with a fabulously valuable asset of 100+ million opted-in subscribers/accounts. A list that it can market to very inexpensively.

Thanks for the support. Clearly I have yet to master the paradigm of "adding value" that classifies it's increasingly clear that groupon is essentially a ponzi scheme with some graphic design. can't wait for the post mortem documentary a la "the smartest guys in the room" as more valuable than my comment. Will continue to try and adapt to the local culture.

It's lame that HNers are so blind to the reality of the Groupon case. It's even more lame that some HN members use downvoting to express disagreement.

Re: The Fall of Groupon: Is the Daily-Deals Site Running Out of Cash?

#43

Post by pbreit »

dreww wrote: post #40
pbreit wrote: post #14

Earlier quoted context omitted.

Groupon's cash flow is just like any other business: it buys merchandise (coupons) from vendors (on a net 60 basis), marks it up and sells it to consumers. How is that a ponzi scheme? I think you might be confused since many news outlets are making it sound like today's Groupon buyer's are funding yesterday's vendors in some sort of mischievous way. But that's how all businesses work.

if groupon is losing money on every customer, adding more customers actually exacerbates the cash flow problem, and every time those customers buy a deal, groupon goes farther in the hole. they use the cash to pay their oldest debts but eventually there will be a reckoning. it's unfathomable to me that it would be an attractive investment.

Your whole comment is lacking but this part is plainly false: "every time those customers buy a deal, groupon goes farther in the hole". Groupon's share of the every coupon purchase, which is around 40%, drops right to the bottom line.

Re: The Fall of Groupon: Is the Daily-Deals Site Running Out of Cash?

#44

Post by ForrestN »

pbreit wrote: post #38
danmaz74 wrote: post #29

Earlier quoted context omitted.

The Ponzi scheme allegation isn't about the cash flow model, it's about the investment return model: Groupon used money from the late investors to pay back the first ones with a profit, even if for now their business is losing money - and it isn't clear if they will start making real money from their business model. Or at least enough money to make the total investment worthwhile.

I've typically seen "ponzi" referencing Groupon's business model, not it's financing activity. Having a late stage investor payoff earlier investors/shareholders is not uncommon. IPO investors then payoff those investors and so forth. Is that what you mean?

As you stated elsewhere, the explanation for this was that it insulated them from the pressure of takeover offers. Getting offered 6 billion for a company you started 2 years ago must be an incredibly difficult thing to turn down, so taking some equity out allows you to make decisions that you think are best for the business without worrying so much about your personal risk profile and so on.

Re: The Fall of Groupon: Is the Daily-Deals Site Running Out of Cash?

#45

Post by jprobert »

The business model of Groupon is eerily similar to that of the US. Use current cash/bonds to fund payables and hope that it doesn't get out of control. For the US it already has but at least the US can raise the debt ceiling and print more money... something that Groupon can not do.

Re: The Fall of Groupon: Is the Daily-Deals Site Running Out of Cash?

#47

Post by cbr »

freshhawk wrote: post #20
pbreit wrote: post #14

Earlier quoted context omitted.

Groupon's cash flow is just like any other business: it buys merchandise (coupons) from vendors (on a net 60 basis), marks it up and sells it to consumers. How is that a ponzi scheme? I think you might be confused since many news outlets are making it sound like today's Groupon buyer's are funding yesterday's vendors in some sort of mischievous way. But that's how all businesses work.

Most businesses don't spend more money to aquire new customers than the lifetime value of that customer. There's a reason the term ponzi scheme is being used by the business news, and it's not because they don't know how businesses work.

     don't spend more money to aquire new customers
     than the lifetime value of that customer.
If groupon thought they were doing this they would stop.

Re: The Fall of Groupon: Is the Daily-Deals Site Running Out of Cash?

#48

Post by switch »

ForrestN wrote: post #41
pbreit wrote: post #37

Earlier quoted context omitted.

Why is a good post like this downvoted? I know HNers tend to disagree but the sentiment is for the most part spot on. Groupon is not a ponzi scheme. It operates like any other business that buys from vendors on net 60 terms. It can obviously dial down on acquisition spending and be left with a fabulously valuable asset of 100+ million opted-in subscribers/accounts. A list that it can market to very inexpensively.

Thanks for the support. Clearly I have yet to master the paradigm of "adding value" that classifies it's increasingly clear that groupon is essentially a ponzi scheme with some graphic design. can't wait for the post mortem documentary a la "the smartest guys in the room" as more valuable than my comment. Will continue to try and adapt to the local culture.

No, it's not that.

It's your flawed assumption that everyone else is wrong and you're right.

Groupon may or may not be a viable business.

However, your assumption is guiding you and you haven't provided enough data or facts. Your opinion doesn't really matter or your annoyance that everyone is picking on poor Groupon.

There are a lot of red flags and you are avoiding mentioning them and not mentioning very much supporting data for your assumption.

We aren't here to listen to wild conjecture.

Re: The Fall of Groupon: Is the Daily-Deals Site Running Out of Cash?

#49

Post by freshhawk »

cbr wrote: post #47
freshhawk wrote: post #20

Earlier quoted context omitted.

Most businesses don't spend more money to aquire new customers than the lifetime value of that customer. There's a reason the term ponzi scheme is being used by the business news, and it's not because they don't know how businesses work.

don't spend more money to aquire new customers than the lifetime value of that customer. If groupon thought they were doing this they would stop.

Why?

It's entirely possible they are doing this, it's also possible they don't believe they are doing this.

Either way, they are making a lot of money and the early investors have already been paid off very well. So if this is the case why would they stop until they run out of new cities?

Re: The Fall of Groupon: Is the Daily-Deals Site Running Out of Cash?

#50

Post by webwright »

dreww wrote: post #40
pbreit wrote: post #14

Earlier quoted context omitted.

Groupon's cash flow is just like any other business: it buys merchandise (coupons) from vendors (on a net 60 basis), marks it up and sells it to consumers. How is that a ponzi scheme? I think you might be confused since many news outlets are making it sound like today's Groupon buyer's are funding yesterday's vendors in some sort of mischievous way. But that's how all businesses work.

if groupon is losing money on every customer, adding more customers actually exacerbates the cash flow problem, and every time those customers buy a deal, groupon goes farther in the hole. they use the cash to pay their oldest debts but eventually there will be a reckoning. it's unfathomable to me that it would be an attractive investment.

For how many years did Amazon lose money on every customer? Land grabs WORK. I'm not convinced that it will here, or that Groupon is a good investment at its current valuation... But the idea that a retail voucher business can't be self-sustaining seems kinda silly. Groupon has 42% gross margins in 2011 q1 (UP 6% from the previous quarter).
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