Groupon stock sinks to new low, investors sue • Hacker News Board

Re: Groupon stock sinks to new low, investors sue

#121

Post by aaronharnly » Wed, Apr 04, 2012, 9:36 PM UTC

edw519 wrote: post #36

The first two shareholder lawsuits were filed Tuesday in federal court in Chicago after the markets closed, seeking class-action status for people who bought stock before the company restated fourth-quarter financial results on Friday. Perhaps those people should have been reading Hacker News: http://www.hnsearch.com/search#request/all&q=groupon&#38... (The first post is rather long and fairly neutral, but check out…

It's interesting looking through the history. In the chronological ascending view, things are pretty overwhelmingly positive for the first 10 pages:

http://www.hnsearch.com/search#request/submissions&q=gro...

There are articles with headlines like "Industry-Changing, Profit Machine", "Is Groupon The Next Google?" (money quote from the article: "I think that, if anything, Groupon is severely undervalued.", etc. Prize for the first seriously skeptical piece discussed on HN is "Why Groupon is Overvalued" by Phil Michaelson:

http://news.ycombinator.com/item?id=1288116

Re: Groupon stock sinks to new low, investors sue

#122

Post by chc » Wed, Apr 04, 2012, 9:37 PM UTC

jacquesm wrote: post #115

Would they have sued if they stock had gone up?

I don't understand why you'd ask. How would that injure them?

Re: Groupon stock sinks to new low, investors sue

#123

Post by dia80 » Wed, Apr 04, 2012, 10:05 PM UTC

nowarninglabel wrote: post #84

dia80 wrote: post #38

Earlier quoted context omitted.

They are extremely expensive reflecting the cost of borrowing the stock. If the weren't you could buy the stock, lend it out and then buy a put and sell call to make a 'synthetic short' and pocket a risk free profit. No free lunches.

Thank you for the follow-up, sorry if too many questions, but one more. If I hold the general consensus opinion here that Groupon is heading to insolvency, and let's say it will be insolvent by January 2013, is it cheaper then to attempt to acquire Groupon stock to short it on margin than to buy a January 2013 put, even if your margin is running at 60%?

You can buy a Jan 13 $10 put for $2.05 so you have an upside of $7.95, just under 4:1 payoff in the event of a proper bankruptcy. That's not a lot so you can see a fair chance of disaster is already priced in.

As a casual investor the option probably wins because you can sleep easier at night knowing that if GroupOn announce a cure for cancer you are only losing the $2.

Re: Groupon stock sinks to new low, investors sue

#124

Post by rprasad » Wed, Apr 04, 2012, 10:13 PM UTC

pbreit wrote: post #104

rprasad wrote: post #89

Earlier quoted context omitted.

Part of Groupon's problem is that it did not actually book 1.6billion in revenue under generally accepted accounting principles (GAAP). It booked 1.6billion under Groupon's magical accounting practices (MAP). Under GAAP, money which is contractually owed to a third party at the time of collection is not booked as revenue. Under Groupon's accounting practices, it is. This allows them to inflate revenue while downstati…

False. Groupon's 2011 GAAP revenues were $1.6b. The number you are referring to is "Gross Billings" which were $4b in 2011. http://www.sec.gov/Archives/edgar/data/1490281/0001445305120...

Sorry, my point was that Google's revenue numbers were not prepared according to GAAP.

The "Gross Billings" numbers include the total amount of deals "sold", including the merchants' portions. The smaller "revenues" number front-loads income that should be recorded over time i.e., by including items that should be recorded in reserves or liabilities until such items are resolved.

For example, Groupon treats as revenue all of Groupon's theoretical portion of a sale, including any amounts that it knows will have to refund and amounts that it estimates that it will have to refund. However, such items are not revenue, either b/c Groupon knows it will be refunding such items (and thus has no claim to the money), or because it expects that it may have to. Such items are supposed to be tracked in a separate account. The separate account is balanced out by a reserve account (a liability) which is removed from the books when the risk of refund has passed.

Re: Groupon stock sinks to new low, investors sue

#125

Post by islander » Wed, Apr 04, 2012, 11:13 PM UTC

guptaneil wrote: post #7

As a Silicon Valley native currently living in Chicago, I've always found it disappointing that Groupon is the poster child of innovation and entrepreneurship in Chicago. They seem to lack a solid business plan and have a history of deliberately misleading investors and businesses. Far more impressive companies, such as 37signals or GrubHub, are based here that deserve that kind of attention instead. I very much doub…

I might disagree with you on that. I am not a GroupOn FAN but if that was their real intention, they would have sold the company to Google long back for $6 bn.

Re: Groupon stock sinks to new low, investors sue

#126

Post by [deleted] » Wed, Apr 04, 2012, 11:14 PM UTC

guptaneil wrote: post #7

As a Silicon Valley native currently living in Chicago, I've always found it disappointing that Groupon is the poster child of innovation and entrepreneurship in Chicago. They seem to lack a solid business plan and have a history of deliberately misleading investors and businesses. Far more impressive companies, such as 37signals or GrubHub, are based here that deserve that kind of attention instead. I very much doub…

[deleted]

Re: Groupon stock sinks to new low, investors sue

#127

Post by cpher » Thu, Apr 05, 2012, 12:33 AM UTC

fasteddie31003 wrote: post #9

People I know who currently work for Groupon say that the culture there is falling apart. To get the numbers investors expect the sales people need to reach unrealistic sales numbers. Management is grasping at straws, trying every trick in the book to not let the whole thing fall apart. The Groupon model is simply not sustainable, it was a onetime gimmick. As someone who lives in Chicago, I am worried about its failu…

I, too, live in Chicago, and I don't think this matters one bit. If you think Chicago should live and die by the same rules as Silicon Valley, then that's your first problem. Native mid-westerners live by the philosophy of "Show Me", which is apt for Missouri's slogan. If Groupon, or any other company, can't show real results then let the chips fall where they may. I ran into a few Groupon employees at a bar on the northside a few months ago. They (the man, not the women with him) were bragging about Groupon and the fact that he was in the "sales" dept. at the company. This was before any shit hit the fan. And all I could think about was, "I hope you have other job prospects." I didn't think this because of some hatred toward Groupon, but rather the naivete of making such a statement. So, the fat salesman wandered off with the cute salesgirls. And I wonder what they're life is like now.

Re: Groupon stock sinks to new low, investors sue

#128

Post by pbreit » Thu, Apr 05, 2012, 12:53 AM UTC

rprasad wrote: post #124

pbreit wrote: post #104

Earlier quoted context omitted.

False. Groupon's 2011 GAAP revenues were $1.6b. The number you are referring to is "Gross Billings" which were $4b in 2011. http://www.sec.gov/Archives/edgar/data/1490281/0001445305120...

Sorry, my point was that Google's revenue numbers were not prepared according to GAAP. The "Gross Billings" numbers include the total amount of deals "sold", including the merchants' portions. The smaller "revenues" number front-loads income that should be recorded over time i.e., by including items that should be recorded in reserves or liabilities until such items are resolved. For example, Groupon treats as revenu…

That's not really what you said previously. You wrote "money which is contractually owed to a third party at the time of collection is not booked as revenue. Under Groupon's accounting practices, it is" and made no mention of refunds. Further, Groupon actually does reduce revenues by the reserves held to cover refunds (hence the recent revenue reduction to account for higher than expected refunding).

Further, the SEC hasn't actually kicked off a formal investigation and if it does, it will be for financial control and accounting deficiencies, not fraud.

Re: Groupon stock sinks to new low, investors sue

#129

Post by prodigal_erik » Thu, Apr 05, 2012, 1:02 AM UTC

run4yourlives wrote: post #57

zecho wrote: post #55

Earlier quoted context omitted.

I think in this case it makes sense. Groupon restated a sharp drop in their reported revenues over three years. People don't necessarily invest in things they think are particularly good business models. They invest in things that are undervalued. If you looked at the revenue/price and thought it was undervalued and then Groupon changed 3 years worth of data on your after you made a stock purchase, you'd sue too. Jus…

People don't necessarily invest in things they think are particularly good business models. If you can't figure out the business model generating the reported millions, it's your own fault for thinking those millions are undervalued. How many of these investors didn't actually care about the value of the stock, so long as there was somebody around tomorrow that would buy it for more? Sorry, but I have no sympathy whe…

I'm not entitled to lie to investors just because they should be smart enough to disbelieve me. There's a point beyond which it's not feasible for third parties to know how realistic my financial statements are, so the SEC has mandated I'm on the hook when I write them.

Re: Groupon stock sinks to new low, investors sue

#130

Post by rprasad » Thu, Apr 05, 2012, 2:00 AM UTC

pbreit wrote: post #128

rprasad wrote: post #124

Earlier quoted context omitted.

Sorry, my point was that Google's revenue numbers were not prepared according to GAAP. The "Gross Billings" numbers include the total amount of deals "sold", including the merchants' portions. The smaller "revenues" number front-loads income that should be recorded over time i.e., by including items that should be recorded in reserves or liabilities until such items are resolved. For example, Groupon treats as revenu…

That's not really what you said previously. You wrote "money which is contractually owed to a third party at the time of collection is not booked as revenue. Under Groupon's accounting practices, it is" and made no mention of refunds. Further, Groupon actually does reduce revenues by the reserves held to cover refunds (hence the recent revenue reduction to account for higher than expected refunding). Further, the SEC…

My answers are contextual; the refunds weren't relevant to the other post I made. In Groupon's case, it does both: it includes money contractually owed to a third party in its revenue, and it fails to reduce revenues by the reserves to cover refunds. Simply having a reserves liability is not sufficient; under GAAP it is supposed to segregate out the portion of revenues potentially subject to refunds which Groupon does not do.

Also, as to the SEC investigation, it could potentially be for both, as fraud would relate to the numbers in the 10-K filing and other filings with the SEC, in addition to financial and accounting deficiencies. SEC investigations are not criminal investigations--the SEC does not have to lay out "charges" prior to beginning its investigation.