Tag Archives: Groupon

Can Groupon Survive?…and Should It?

Posted on by
Reply

Is the end near for Groupon?

It’s been years since I got my first penalty flag for piling on, nearly 50 years to be exact.  Today I’m getting my next one.  I’ve had more than a few over the years, but this is a ‘fun one.’  Today I’ll take one for the team and talk about Groupon again.  Talk about penalty flags, they are setting records for their first year as a public company.  Like the targeting scandals in the NFL, they could be coming close to getting a death penalty called on them.  Time to stop and reflect on where they are now, and ponder can they save it before someone comes in and takes the ball from them.

Last week they were forced to admit that they had overstated their earnings in the latest quarter.  The CFO fell on his sword and was officially let off the hook by the CEO.  However, the investment industry doesn’t take well to these kinds of ‘mistakes’ and a drumbeat has come up with a chant looking for changes NOW, with a decree that this can’t happen again.

The market came on line at the same time and hammered the stocks on Monday, and yet again today.  The price is now well below the initial offering price, but the overall market value of the company is still strong…too strong actually, and this is the real problem for Groupon.

Groupon was started with a great idea – daily deals that would shake money from the pockets of the public mired in a recession.  They were sitting on their wallets and needed a real reason to open them back up.  Groupon started the ball rolling, created buzz in the market, and produced some amazing results for many of their client businesses.  Consumers fell in love the ‘daily deals’ and a new marketing segment was born.

It started so quickly, and the results were so strong for a number of advertisers, that many thought that this model would be the key driver for local marketing and would overtake all of the other media including daily newspapers.  Investors roared in with loads of cash.  Big money on Wall St. was looking for a place for high returns, and fodder for the mill on IPOs.  The die was cast and Groupon went public in a blitzkrieg not seen since WWII.  But then…the roof fell in, and here we are today.  What happened?

What happened is that the creative spirit that drove the design and initial rollout of Groupon has no depth or maturity.  The CEO Andrew Mason has been shown to have some great ideas, but no real management depth.  A real manager should have been brought in – they needed an adult.

Secondly, the infrastructure to account for all the transactions and dollars is woefully inadequate.  In these deals the money is collected up front by Groupon and then the remainder after the Groupon split, is paid back to the client company as they are redeemed.  So here’s the picture- lot’s of cash rolling in, and slowly rolling back out over time.  Sounds like a big bank that needs lots of financial controls – and there weren’t any, or at least, not enough.  I’ve dealt with this many times in my career in business and consulting, and this always leads to problems.  With all that cash on hand, you just have to feel wealthy and successful, but then the money has to rollout to clients and suppliers and the giddy ‘wealth effect’ sets in.  This is where Groupon is today.

And now the ultimate penalty could be coming.  The SEC, as toothless as they are, is now starting to investigate Groupon for having to restate their earnings.  It doesn’t look good for Groupon, especially in light of the fact that the SEC needs a win to help them in their fight to keep their funding from being cut further by Congress.

If having the SEC on your case is not enough, an influential segment of the blogging community is also coming after Groupon. Rocky Agrawal in his reDesign blog opens with “Groupon was forced to restate fourth quarter earnings, sending its stock down 6% in after-hours trading.  This surprised me as much as my $2 investment in the Mega Millions jackpot not paying off.”  Ouch!

Rocky picks apart the business model of Groupon and that it is neither a coupon or marketing company, but rather a receivables factoring company.  They are a sub=prime lender in effect, living off of one cash stream while they try to meet the spread on the other end.  I think he is spot on in his points here.  One thing for sure is that they are not the saviors of the marketing field, not newspaper killers.  Newspapers have committed suicide over the last several years and needed no one to do the job for them.

So what next.  Enjoy your daily deals.  Groupon or someone else will continue to provide them.  They work for many on both sides of the transaction, but not for all, as many complaints will show.  I think the real issue is that Groupon can survive as a business, just not as a publicly traded one.  A great idea, but a horrible timing in the rush to the public market.  Yeah, they are a sub-prime business and Wall St. yet again was at the ready to make the deals cause they get paid no matter what.

I’d be willing to place a small wager that in this game, like the housing markets they have bets all across the line – win or lose, black or red, and they know how the numbers work.  They will be the ultimate winner in this ‘daily deal’ at the expense of shareholders.

Groupon CEO Survives Digital Suicide on 60 Minutes

Posted on by
Reply

Last week Andrew Mason, the 31-year-old CEO of newly public Groupon conducted an interview with Leslie Stahl of 60 Minutes.  I was excited to get to see for myself just how crazy this newly minted multimillionaire could show himself.  Groupon is know for its wild culture, and Andy did not disappoint.  The words, the look and the attitude were just what I was expecting.  Lesley, to her credit, seemed taken back, not that she hasn’t interviewed a number of crazies over the years, but this was a masterpiece of craziness.

Crazy how?  Crazy in that Groupon continues to struggle to achieve real relevance since going public.  As the biggest tech IPO in some time it was to be a real bellwether of things to come for others seeking to go public.  The price was set relatively high at $20 per share, and it hit the mid-thirties in the first day, but then retreated.  The bloom quickly faded from the rose and it continued to slog along in the low 20’s, sometimes dipping below.

One thing for sure Mason was still high on the ‘juice’ of their success, though smarting from the comedown of having to restate their earnings.  They had forgotten to include things like ‘sales expenses’ that included the returns back to the advertisers after sales had been booked.  Ouch!

Started in 2008, Groupon was one of the few businesses that actually took advantage of the economic downturn.  Blessed with a large pool of available talent, many recently displaced from their current jobs, they were able to build a solid team to blanket the market with a novel concept.  Pay nothing up front, get a lot of customers in your doors, and get around 50% back when the customers pay Groupon.  Groupon gets all of the money upfront, and the clients have to collect from Groupon.

In the existing advertising world a number of clients have tried to negotiate these deals with newspapers and others, but this was generally for remnants that the newspaper knew would go unsold anyway.  This did not happen often, though more today, and Groupon created a new model for the financial transaction.  Would it work?  Yes, but there are catches.  This is built on the model of getting new customers, and the goal of building loyal customers.  This has been the real sore point from my research with a number of Groupon advertisers.

Most of the Groupon advertisers have found that redeemers of Groupon offers are not returners later.  Having found one deal they get hooked, and then search for the next deal.  Others have found the process somewhat confusing and hard to understand and are not flocking back for more of the same medicine.  The last factor is the holdouts that have not jumped on the bandwagon for ‘daily deals’.  This is the sector that, in the tight economy, has shut down their discretionary spending.  They are not enticed to buy something they didn’t really need just because it was 50% off.  Tight times mean tight wallets for many, and enticing offers just won’t work well with this group.

What does this mean for Groupon?  Groupon will continue, and will continue to produce some great results for some types of businesses.  For many though they will burn and churn through a number of clients who will never do a Groupon deal again.  Competition will continue to grow, why because the barrier to entry is low.  Existing forms of advertising will also offer daily deals, most already have just on that bandwagon.  The churn and the increased competition will make it hard for Groupon to be the 800 lb gorilla many had thought.

What does this all mean?  Groupon will continue, but it will not become the growth stock many had hoped.  Those who bought the initial offering will come out ok, but those who bought in the 30’s will never recoup their full investment.  This could change if Groupon evolves beyond its existing concept, demonstrates solid growth, and solid customer retention through great sales results at the advertiser level.

I wouldn’t bet on it.  I also don’t believe that monkeys can fly, even if Andrew Mason thinks they can.  Time for Andrew to grow up, put on a tie and be responsible.  I’ll be reading the results weekly to see how it goes.  And regarding the interview?  It was classified as a PR nightmare the next day.  The stock price went up for a couple of days and then declined back to around 20 again.  I guess that proves the old adage – ‘buy on the bad news, and sell on the good news.’  It’s Monday, and the price remains about the same.  Put on the tie Mr. Mason!

The Groupon Bloom is Fading Quickly

Posted on by
Reply

I guess you could say that the bloom is off the rose for the Groupon IPO and the initial investors as the stock cratered this week.  Tech stocks also hit the skids, the European market is still a major drag on the market, as if it needs one.

After jumping up during the first few days of selling to over 31 from the initial 20 offering price it settled in to the mid-20’s and stayed there.

It stayed there for a few days and then started a slow downward creep.  Today it passed below the 20 floor at about 17.

There was always a certain amount of skepticism regarding the IPO, but reality seems to have settled in, for Groupon as well as a number of the other tech stocks who have gone public over the past year.  Today the name WebVan came up again and that is not the kind of company wants to be seen in, or mentioned with.

This could also be a big signal that the market is not ready for another round of new tech companies to go public right now.  Great way to raise some cash for the initial investors, but a horrible for the next round of stock investors who are now getting burned by Groupon.  This should chill the interest for a while.

This will also have more than a few to go back to take a look at the Groupon model to see if it really has staying power.  A number of newspapers have also announced another round of daily offerings for them to share with joint audiences in addition to their own unique daily discount offerings.  The field seems to be a little crowded right now.  Great for people seeking deals, but a horrible place to invest for the future as a stock.

 

Groupon’s Big Coming Out Party

Posted on by
Reply
Happy Day's are here for some...will it be the investors?

Ringing the Bell for the Launch of the Groupon initial trading day

Today is Groupon Day!  Perhaps this will become a national day of recognition, just like Groundhog Day when we all come out to see if “Phil” sees his shadow or not.  Today we’ll see if Groupon, has the “legs” to go the distance as an investment stock.  I’ve held my tongue until now, though my files are huge with material on Groupon, and the other digital deal sites like Living Social.

Groupon has been taken to task for its creative accounting.  I guess John Corzine used that as his model for his latest venture, and we see how that has gone for him and his investors.   I have many doubts about the long term viability of this sector as an investment opportunity.  They can move product, but do they produce profits for their customers who offer the deals?  The jury is still out, but the results are very mixed based on the results from many who have lost heavily after doing a ‘Groupon.”

I’ll be following the results over the next several weeks with posts on Groupon, both as an investment, and as a marketing tool.  Back at you later when we see how the stock ends up next week.  Talk to you next Friday!

The Great Southern California Media Auction

Posted on by
Reply
The Orange County Register

The Orange County Register

The dance goes on for control of the Freedom Communications media ‘empire.’  Both in a WSJ article on the sidebar, and then again in today’s LA Times article in the business section it appears that the bidding to purchase Freedom, including the crown jewel, OC Register, has broken down.  That means the price was too high for the outside financing to cover the purchase.  Media News, led by Dean Singleton, is the 2nd largest newspaper chain in the U.S., behind only Gannett.  Media News has a large stable of papers in the area and this would make the chain the dominant player, in terms of circulation, in the state.  The Tribune Company, owner of the Los Angeles Times, was also rumored to have been in the bidding.

In April, the whole saga was laid out in the Newsasour blog by Alan Mutter.  For anyone who cares about the state of print journalism in the state, or in general, it was a comprehensive and fascinating treatise on how things could play out in the bidding for Freedom Communications and the case for media consolidation in the entire Southern California area.  The article “Big Duel Likely for Orange County Register” is a great read, and I would encourage all to view it.

So what happens now, and really what does this mean to consumers and to businesses.  Next we assume, is that the sale process for Freedom goes on.  Terms may change and this could open things up to additional buyers, but Media News and Tribune are still the ones with the most to win.  If either wins, then they will have the dominant print media position in Southern California.  The new larger player would have better economies of scale and could spread their expenses over a larger base.  It would also place the loser of the two media companies in a diminished position, which could in fact, open further discussions to a total combination of ‘winner take all’ as the only real survivable posistion.  What a major change from just a decade back when all groups were profitable.  Looks like a kind of a ‘race to the bottom’ from that perspective.

For consumers this really means fewer choices for their print news, if they even care.  Demographics are working against newspapers and circulation continues to decline, and with that, declining advertising revenues.  Most will be forced to get their news online, and advertising will always find a way into the home – perhaps by a Groupon or one of the new clone ‘dealers’ who will send out their daily messages to subscribers.  In today’s world when so many have clamped down on their wallets this could work for a while.

For businesses they will lose a powerful and flexible tool to reach likely consumers on a daily targeted basis.  This helped to make the newspaper a potent tool in nearly every community, and created virtual monopolies and cash cows for publishers.  Those days are gone.  Newspapers will have to evolve to stay relevant and profitable.  Perhaps they can, but the cards are stacked against them.  I still love to read my paper – but now only 4 days a week.  My wife says I am weaning myself down, and I guess I’ll choose to go along with that.  In reality, as a professional from the industry and heavy news consumer, I too find that newspapers are not as relevant in my life anymore.  Time to take out the recycling, and to read from my new iPad.