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Groupon stock sinks to new low, investors sue

chicagobusiness.com

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Re: Groupon stock sinks to new low, investors sue

#21

Post by Quizzy »

They should have unloaded this fraud on Google when there was a $6 billion cash offer sitting on the table (assuming that was true).

The fact that Google even offered that much leads me to believe that they have jumped the shark with that offer.

Anybody who knows anything about retail would have studied the business model and realized that this was not sustainable. Obvious red flags: 1. Heavy reliance on field sales (the largest expense), which is NOT scalable 2. Exclusive reliance on repeat sales as the key driver of sustainability: this being the obvious case, did Google not do its due diligence and actually surveyed past Groupon customers? Such a siimple survey would have easily revealed the issues of this "local deals" model. 3. Heavy reliance on "small business" owners as the driver of revenue. This is a sensitive and fickle market, where even slight movements in the general economy will cause huge moves in spending patterns.

These 3 points were readily available to anybody with some insight into this segment; Google with all its money must be surrounded by "yes" men, nothing else could explain it's willingness to part with $6 billion so quickly.

Re: Groupon stock sinks to new low, investors sue

#22

Post by dia80 »

walru wrote: post #6

GRPN was a always a short sellers dream come true. Next up, ZNGA.

Yes, it was, and that's why it is nearly impossible to short. I've been paying 30-40% annualised to borrow the stock for shorting and the rate spiked to nearly 60% recently. Being short is more expensive that most people think.

Re: Groupon stock sinks to new low, investors sue

#23

Post by crag »

And this is what happens when inventors invest in a company they know noting about. This is what happens when you listen to the hype, and the street and NOT do your own due diligence. There's a reason why the big banks backed the IPO but didn't take a percentage.

When it all comes down in flames, (I think it's already begun - if you haven't gotten out, get out now) the only saving grace is that the CEO and board will be embattled in court for years. The investors might get a few pennies on the dollar.

Re: Groupon stock sinks to new low, investors sue

#24

Post by lubos »

snorkel wrote: post #8

Who would guess that there could be an integrity issue with a company that tried to invent new accounting rules where marketing costs don't appear on the balance sheet? You'd have a crystal ball or a brain to see this coming.

Marketing costs are not supposed to appear on balance sheet.

I don't really watch this company but if I remember correctly, their way of doing accounting was to show all received money from customers as income instead of liabilities since they were collecting half of it on behalf of vendors.

They were simply inflating their revenue but it's not like it matters, because profit (loss) would be always the same regardless.

Re: Groupon stock sinks to new low, investors sue

#26

Post by Quizzy »

api wrote: post #20

I remember hearing about how this company ran, and figuring it was nothing but a giant boiler room sales pit and a gimmick. I am not surprised.

Anecdotally, the first generation of sales rep have nothing but depressing things to say about this entire market segment now. The first year sales numbers were gangbusters, until their clients called back complaining, swearing never to do another Groupon deal, ever again.

It's not just Groupon, this entire business model is unsustainable: asking a retailer to discount his products for a fee in the hopes that he will attract new "local deal" customers willing to pay full retail next time, when the ONLY reason these customers came in the first place was because of the discount.

Re: Groupon stock sinks to new low, investors sue

#27

Post by jasonrr »

dantheman wrote: post #17
bfrog wrote: post #2

Please. As if anyone with half a brain couldn't see this ponzi scheme on the blowup train of doom. Who are these magical investors?

It's not a ponzi scheme.

Simply stating it is not a ponzi scheme doesn't advance the conversation in a meaningful way in my opinion.

It's really just semantics at this point. There is a lot of evidence here that suggests systematic misleading (if not out-right defrauding) of investors. So you while you are technically correct, I think what Groupon has done is in the spirit of Ponzi even if it is executed differently. What's happened here is more than just a bad business plan executed honestly producing poor results. Just because we don't have the exact word for it doesn't make it any more ethical.

Re: Groupon stock sinks to new low, investors sue

#28

Post by nakor »

Quizzy wrote: post #21

They should have unloaded this fraud on Google when there was a $6 billion cash offer sitting on the table (assuming that was true). The fact that Google even offered that much leads me to believe that they have jumped the shark with that offer. Anybody who knows anything about retail would have studied the business model and realized that this was not sustainable. Obvious red flags: 1. Heavy reliance on field sales…

I'm not sure if they actually could have sold the company to google even if they wanted to. My understanding is that you must open your books to the prospective buyer after a certain stage and it is likely that once the google accountants had a look at Groupons books the deal would have fallen through.

That could have created negative press and damaged their pump-and-dump strategy for the IPO.

Re: Groupon stock sinks to new low, investors sue

#29

Post by Quizzy »

dantheman wrote: post #17
bfrog wrote: post #2

Please. As if anyone with half a brain couldn't see this ponzi scheme on the blowup train of doom. Who are these magical investors?

It's not a ponzi scheme.

It is when you need new sales to pay for the cost of maintaining existing client base: 1) client #1 pays you, but you have to give him back half at a future date, 2) while his money sits in your account, you spend it on operating costs, 3) get new client money in order to pay client #1 back.

It is that money sitting in the account that gives Groupon the cash flow it needs to hire more sales people to grow the revenues further, but remember always that a % of that must be returned to the customer at a future date. Where it falls apart is when your new sales can no longer replenish the client account (no it does not sit in a trust or escrow, but in company's general operating account).

So what happens when Groupon declares Bankruptcy? All that money sitting in the account is gone, customers get NOTHING back. Yes, this is indeed a Ponzi scheme because the last customers in get nothing, even though they are owed the %.

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