Tag Archive for Groupon IPO

Groupon’s Stock Price Yo-yo

Groupon's Stock Price As of Dec 9 2001
Groupon’s Stock Price As of Dec 9 2001 – Source Bloomberg

One -hopefully last- post about Groupon‘s stock price (GRPN), for the sake of completion. Groupon’s stock price has been going up and down (max $31, min $15) like a yo-yo since the stock’s November 2011 IPO. It is now back up to above its $20 issuing price.

Most analysts are skeptical or downright negative about Groupon’s financial fundamentals. I am. GRPN has assets such as its popular brand name and its significant lead over LivingSocial, its Nr 2. But Groupon hasn’t yet built the sustainable money-making machine that would justify its current price/sales ratio — more details in previous posts below.

But who cares about fundamentals? GRPN’s stock price is not determined by the company’s financial fundamentals but rather by investors’ anticipation of their fellow investors’ behaviour and by issuing conditions — such as a very low float of less than 5% of the stock which also largely explains the large current variations.

In some sense, GRPN is not much different from Western governments: raising and spending money like there is no tomorrow.  Let’s hope that at some point they can turn (around) into some serious, financially sound business!

Groupon bashing unleashed

Only two weeks ago, local-deal start-up Groupon was acclaimed as an unprecedented eCommerce success and its IPO was as hotly anticipated as Facebook‘s. Since then, however, Groupon’s S1-Filing disclosed a cumulated $540 million loss on a cumulated $1.4 billion Gross Transaction Value. Suddenly, all love for the eCommerce posterchild seems lost and every aspect of the business is slashed. I believe critics should have been wiser earlier and the investment bankers who hyped up Groupon are to blame.

Bertolt Brecht Picture from Bundesarchiv Source Wikipedia

Bertolt Brecht Picture from Bundesarchiv Source Wikipedia

“Do not let anybody put you on a pedestal because once people realize you’re just human, it’s you that they destroy, not the image they created”. Groupon’s CEO Andrew Mason should probably meditate this thought from German author Bertolt Brecht.

Andrew Mason and Groupon, the company he co-founded in 2008, became the talk of the town after the company raised $135 million in April 2010 and, even more so, after it raised a whopping $950 million in January this year. With over 80 million online subscribers in more than 40 countries, Groupon dominates the booming local deal market it has contributed to create. Until recently, most observers were in awe. To name but one example of the Groupon-groupies: Last August Groupon was described by Forbes as the “fastest-growing company in Web history” and “what the dot-com boom was supposed to be all about“.

Well, now it seems that Groupon is rather exactly was the dot-com bust was about: a completely inflated valuation. Since Groupon has released its S1-Filing and revealed a cumulated loss of $540 million, criticism is raining on every aspect of the business. Worse, the critics are among the most influential voices in finance and eCommerce: Bloomberg, The Street, Marketwatch, The Economist, the FT, the Wall Street Journal, thisismoney.co.uk, Huffington Post, TechCrunch and more.

Below I review the 5 most critical points why Groupon is overvalued: 1) Inflated revenue and income; 2) Lack of merchant and customer lock-in; 3) Bad deal for private IPO investors; 4) Leadership flaws; and, most importantly, 5) Lack of financial value multiplier Read more