Groupon's IPO: don't get too excited about 30% rise When The Reg reported on Friday morning that the stock price of daily-deals coupon-monger Groupon was hovering at $27.85 two hours after going on sale at $20, we noted that if it stayed at that level, the company would be worth $15.7bn when NASDAQ shut down for the day. We were close – well, if you can call one billion …
If "independent analysts such as Morningstar Inc. have valued Groupon at as little as $5 billion", this is for a good reason. And according to my own valuation:
1- poor execution in several key international markets (e.g. ranked #10 in China, #4 in India)
2- fierce competition encouraged by an easily replicable business model
3- a dual-class share structure
4- dubious reasons behind this IPO
For the record, my valuation - based on fundamental analysis assuming Groupon's withdrawal from China and a quick turnaround in other international markets - came to $4.8-$6.2 billions ($8.22-$10.25 per share), still at a premium compared to some other companies such as eConversions (in the UK).
There will always be a debate on the "value" of a company, but I can't resist to give you an extract of my report on the latter two items listed above:
<< A notable risk to public investors comes from the dual-class share structure designed for Groupon's founders to continue controlling the company with 58.1% of the voting power, yet less than 35% of the outstanding shares. In our opinion, this fosters poor corporate governance and should have been avoided.
We also question the reasons behind this IPO. Groupon stated that net proceeds of this offering will not be used to fund operations during the next 12 months. About 85% of the $1,113 million from past private sales of common and preferred stock were used to redeem shares, hence the press's accusation that Groupon is a Ponzi scheme. We expect this IPO to serve the same purpose of transferring wealth from new public investors to existing stockholders. The fact that very little equity is made available to public investors - a common way to maintain a steep valuation in an IPO - reinforces that sentiment. >>
The latter paragraph refers to the float that is so small (Groupon only offered 5.5% of its capital to the public) in order to push up the price per share - following the law of supply of demand. Obviously, every sale of a new block of stock will have the opposite effect.
And when people realize that Groupon has no competitive advantage (thanks to an easily replicable business model) and never manages to turn a profit in the most populous, highest growth markets of China and India, the stock will crash.
I can't wait.
These first couple of weeks is the only real time to do anything with the Groupon stock. It's just a non-starter going forward. I absolutely believe senior management of the company believes that as well. Too many defections (before an IPO?!!), too many email freak-outs (Andrew Mason) - all the signs are pointing negative on this company. Speculators and "pump and dumpers" are really the only reason it did anything today. Watch it fall in the coming weeks.
http://mankabros.com/blogs/onmedea/2011/01/13/the-trouble-with-groupon/
Their Terms of Service are joy to read. If you are a retailer you are well and truly screwed.
Wanna clear some old stock? Well, if you use Groupon, you are certain to get less than you paid for the items. You'd be better off flogging them down your local car boot.
Ponzi Scheme? You bet.
It will crash and burn.
I don't have any connection with them, financial or otherwise but I was asked by a retile what I thought of their terms of business.
All the UK offers I have seen are things like fish foot massage or "£90 for one lap of an airport in a Lambo". All things that cost nothing much, so selling them at half price is still worthwhile, especially since you can then slot the customers into yer off days.
In have yet to see anything with a fungible value on sale. All the offers are for things I would not have as a free gift, let alone at the Groupon price (and certainly not at the alleged "full" price).
It isn't real, is it?
So where is the groupon for buying 100 quid's 'worth' of shares for 40 quid? Might just be worth buying that way if I could offload them quick enough. Whats that you say? Selling things that way would be a crazy unsustainable business model guaranteed to lose money? I think that proves the point rather nicely.
Groupon customers only look for bargins, they are not people who would be willing to pay full price for anything.
Businesses who think that by accepting losses using this business model with Groupon will encourage people to come back are mistaken.
The customers are Groupon customers and they will be looking for the next deal not paying you for a full price service.
Businesses rarely use Groupon twice.
With sites such as this everyone expects something for nothing, once they get it they move on to the next one.
Like pyramid selling, there will be more and more customers wanting something for nothing but the business base will reduce and reduce then COLLAPSE.
Groupon, flag in the dodgy pan, a life cycle of 2 yrs at most from now. They'll rebrand or go bust, don't let them have your money when they do.
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