Why Groupon is poised for collapse | Hacker News Reader

Why Groupon is poised for collapse

venturebeat.com

101 pointszoowar24 comments

The insiders lock in period ends May 2nd, that's 30 days to keep it together before they can start cashing out. If they last that long they have 12 days before Q1 results. It's going to be tricky to unload meaningful quantities of stock before the earnings since daily volume averages 0.4% of market cap and 95% of the stock is held by pre IPO investors.

The pressure to manipulate earnings and create more time for the insiders to salvage value must be unbearable. GroupOn may be remembered as the first big fraud of "Bubble 2.0"

Pets.com lasted 268 days from IPO to liquidation, it could be close.

Groupon is a ponzi. They need money from new groupons to pay out past groupons. This is why they are constantly buying out smaller companies for new markets, and getting into higher end groupons. If the new money coming in is less than the money payed out to previous groupon, the companies collapses, just like a ponzi.

As long as they can make the company look healthy in the near term (accounting tricks), they hope investors won't notice the medium-long term liabilities, or the flow of funds necessary to keep the company afloat, but by then insiders would have sold out the bulk of their positions, and someone else is holding the bag.

Groupon will signal the bursting of web bubble 2.0, and will drag down the Facebook IPO. And if the Facebook IPO falters, silicon valley hits the skids, because everyone in Silicon Valley is in that play. Everyone.

I think that a) Groupon will take longer to blow up than that, and b) people will be happy to write off the daily deals sector as something pretty much unrelated to Silicon Valley. Groupon is in Chicago, Living Social is in DC. They are marketing companies, not technology companies.

Now if something else fails big, I'm sure people will see a trend. But I don't think Groupon will be enough.

Groupon is VERY Silicon Valley, investors include NEA, Andreessen Horowitz and Kleiner Perkins.

Mostly tripe in this post. You do realize that Groupon only pays out 40% or so what it brings in making ponzi activity unnecessary.

If anything groupon is a pump and dump. Groupon is not a ponzi scheme.

If Groupon sacks most of its sales staff, it might do OK.

Groupon is doing an Amazon-style land grab. They want a fat book of customers (both businesses and clients - it's an open question which are the real customers). They are willing to blow a huge amount of investor capital doing this.

Some businesses will lose big doing Groupon campaigns. Groupon doesn't care, as long as a certain percent of businesses figure out how to do well with them. For now, they are willing to burn a few customers.

As long as they can make the company look healthy in the near term

They are not doing a very good job given the lead articles in the WSJ talking about Groupons financial issues.

How different is dumping Groupon stock by pre-IPO investors (who really know what's going on inside the company) and large investment banks selling over-valued MBS? None. Large cap VCs are no different to Wall Street, and they want to make us believe otherwise.

I think the important difference between VCs and Wall Street is that the MBS stuff was obvious chicanery with a terrible societal cost. They might as well have been stuffing horse manure into sausage casings and selling it as all-beef hot dogs.

I grant that Groupon is pretty dubious, but the other upcoming tech IPO candidates I know about have actual solid businesses. I think VCs don't generally play the "greater fool" game, if only because it doesn't work well at their timescales. MBSes were very liquid, and the organizations making them had ways of selling them off quickly. For VCs, on the other hand, the median time from initial investment to exit is something like 7 years; that's a long time to wait hoping that nobody sees through the bullshit.

I partly agree with your argument, specially on the liquidity side. Having said that, Venture Capital is one of the riskiest investments, and they wan't to make outside investors feel as if these companies are Treasury Bonds. VCs should be less selfish and admit that raising Series A, B or C does not validate a business and it's ability to become a great company. An it specially does not validate ridiculous valuations in the Stock Market.

Just watch Jeff Clavier's interview in Blooomberg, it's simply embarrassing: http://www.bloomberg.com/video/74892006/

IPO investors should sue any pre-IPO investor going on national TV arguing how great their investment is, and later dumping the stock. Just listen Jeff's argument and count the number of "if". He is just making a bunch of excuses of why Groupon is great, all conditional to god know what kind of number of hypothetical events. This is acts are dangerous, selfish and immature, as they damage the Startups' image to society.

Didn't most of the insiders already cash out before the IPO?

No. Just a handful of executives and investors.

Please keep in mind, most secondaries are done like a IPO except its secondary shares not primary. Bankers line up a set of buyers to sell in blocks (usually at a discount but not as much as IPO discount) in order to help with the massive liquidity inflow.

Also, they can't dump their entire stake. Usually IPOs of tech companies get to dump around 25% max of top mgmt stake in its first secondary offering and bankers will advise companies to usually wait 3-6 months to dump another stake and so forth especially for companies with low barriers to entry. So the entire process takes a decently long time not one month or quarter.

Management dumping so much ahead of IPO is very suspicious and /or at the very least it may imply they have no conviction in their core business model. I mean companies go public to raise money to propel growth. It should help pump up the share price. On top of that, original IPO budgets given to banks are usually conservative so that MGMT doesn't miss guidance for the first 4-6 quarters until they can dump all of their shares. The fact that in their first quarter they missed their own guidance suggests the business is in a whole lot worse shape than even what the company expected. That's bad news.

In recent weeks/months they've acquired Hyperpublic, Kima Labs (Barcode Hero), Adku, Pelago (Whrrl), and Fee Fighters. What's their strategy? Move away from email deals, and get into the location-based check-ins space?

Mobile, location-aware deals is their main hope of driving large amounts of new revenue since most of their current audience is already suffering from email daily-deal fatigue.

While I don't feel any one company has really nailed the location-aware deals space, when somebody finally does I think it'll be very closely tied to the payment. In my opinion, companies like Square and Dwolla have a distinct advantage that companies like Foursquare and Groupon (if they go this direction) lack.

I think the combination of payments, deals/coupons, and loyalty programs is what will really nail this space- but I agree with you, it's mostly the payments that will make or break this.

There are also some interesting opportunities with online advertising integration/tracking, but that's really just icing on the cake.

Their "hyperlocal" deals product, GrouponNow is essentially a huge failure. It hasn't taken off at all, it just accounts for 1% of their billings.

http://www.chicagobusiness.com/article/20120321/NEWS07/12032...

Some of these claims about the danger of Groupon refunds are exaggerated. For many deals, Groupon simply does not grant refunds, so customers need to be sure they can use the deals they buy.

But, I still think that Groupon will fail, maybe when they run out of enough new vendors to partner with.

I can confirm the 'Groupon Promise' isn't what it seems to be. Even after Mason blogged that there was no need to sue Groupon for violating state expiring-gift-card laws, because people with expired groupons could always just use 'the Groupon Promise' for a refund, Groupon refuses to give refunds on expired groupons.

That may save them a bit on refunds, but it creates pissed-off customers who won't be fooled again. I'd bought 4 groupons before I discovered the Groupon Promise was a lie, and none since.

(And I don't mind companies having tough return policies if that's what's required in their particular business. But I mind a company pretending it's got a liberal return policy – touting it front-and-center, getting free publicity from it, using it to spin coverage of legal problems – when it really doesn't.)

A glance at the options pricing suggests to me the market agrees. Not a whole lot of volume, but betting against groupon will cost quite a premium.

It seems like groupon goose is cooked the model was flawed. I don't think it started out as a ponzi scheme, but now it seems like what it will be known for. The bubble 2.0 will live on groupon may even live on as different startups which learn from it's mistake. Unless they learn and change this is bound to fail. They went to IPO to fast anyway for my taste.

I felt the same.

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