The Audit

11:08 AM - January 14, 2011

The Groupon Bubble

NYT reports Wall Street pitching a $15 billion to $20 billion debut

By Ryan Chittum

• Facebook
• Twitter
• Email
• Print
• One Page

Comments Post a Comment

Groupon is doomed. It's basically, to me, simply an online/mobile version of Valpak with horrible deals that people really don't need. Consumers will wise up sooner rather than later and post-IPO it could be a real problem going forward.

http://mankabros.com/onmedea/2011/01/the_trouble_with_groupon.html

#1 Posted by Jill Kennedy, CJR on Fri 14 Jan 2011 at 07:37 PM

Nary a mention of the Groupon scandal in Japan that made national news. Customers were promised a traditional New Year's meal for $100, and what they were sent on New Year's Day defies description:

http://livedoor.2.blogimg.jp/dqnplus/imgs/9/b/9bdcec84.jpg

A scam like this is unheard of in Japan today, and people on the street were quietly wondering whether foreigners were involved. The apology released by the company mentioned some key points about the Groupon model: they got too many orders, for too cheap a price. Groupon Japan will probably fold under this negative press.

#2 Posted by Avery, CJR on Fri 14 Jan 2011 at 07:46 PM

"Bubble and bubble, toil and trouble"
Yes Groupon is destined to be but a minor player in the local advertising arena.
I deal with hundreds of local merchants and none of them can afford the 75% cut in income.
We charge the local merchant 5% with nothing upfront in our USA Savings Club fundraising program. Half goes to a local school, church, sports team or charity.
We have hundreds of local merchants willing to discount a reasonable amount and help the fundraisers.
How many yoga and skydiving lessons can you take?

#3 Posted by Terry Mowery, CJR on Sat 15 Jan 2011 at 09:56 AM

A deal with Groupon, to promote my waterfront vacation rental, looked wonderful right up to the point where I pulled out my calculator. In reality, it's great for the customer,fabulous for Groupon, terrible for the business. Plus, the offerings are rarely motivating, so I unsubscribed. Not even 'one and done.'
I would have lost money with every customer they sent.

#4 Posted by One Sweet, CJR on Sat 15 Jan 2011 at 11:59 AM

Of course the real problem with Groupon, other than the mentioned bad deal it is for the businesses who participate, is the Wall Street jerks selling the shares.

If they're going to be structured anything like the goldman deal with facebook,

http://www.thedailybeast.com/blogs-and-stories/2011-01-07/goldmans-facebook-voodoo-why-its-social-media-deal-is-worse-than-toxic-mortgages/

investors beware.

#5 Posted by Thimbles, CJR on Sat 15 Jan 2011 at 06:29 PM

There's barely anything that Groupon is offering now. I admittedly was excited first but I've only bought two group deals and I don't even remember if it was groupon or some other copy cat company.

#6 Posted by analyst analyzer, CJR on Tue 18 Jan 2011 at 08:51 PM

Nice story! Refreshing to see someone use basic logic and reporting skills in looking at dotcom bogosity. Remember the AOL-Time Warner merger? AOL had a larger market cap. heh heh!

#7 Posted by Meredith Hobbs, CJR on Wed 19 Jan 2011 at 04:19 PM

Part of the issue is that there's a ton of VC and investor money available, and it's being pushed toward web properties that "have potential". If you invest in five of the Internet companies "with the biggest potential" and even one or two make it big, you'll probably end up doing quite well. Typically VC's get their big returns on, what, one in five investments? If you have millions to burn and aren't putting all your eggs in one basket, you're spreading your risks and improving your chance for profit.

I saw LivingSocial's promotion with Amazon, $10 for a $20 gift card, and my old school skepticism kicked in - "If it sounds too good to be true...." But really, that was an example of how one of LivingSocial's investors hopes to increase buzz for and the value of its investment. Groupon's present value lies in its brand, infrastructure and staff, none of which guarantee success against competitors who are free to copy and improve upon everything it does - or even to leapfrog it with a new, big idea.

I believe Groupon would have done well to have agreed to the Google purchase. Google would have benefited from getting the biggest brand name in the business and a "going concern" with a full staff of salespersons. Was YouTube technically superior to Google Video? No, but by buying the brand Google obtained and maintained dominance in the space - and that's the goal. Google could also afford to change the financial structure of the deals, making them much more business-friendly, while also potentially offering better consumer protections. Groupon Japan would have been positioned to take a harder look at the potential for New Year's profits - "can these businesses deliver," as opposed to "Wow... our end of this will be huge."

A business that offers discounted salon services can require that people schedule services. Restaurants can require reservations. With smaller businesses is the problem that they can't handle the influx, or that they're offering too much (or the wrong thing) in order to become a Groupon "deal"?

Let's say I run a bagel shop. Would Groupon let me pitch a coupon for half-off a bagel with cream cheese and a coffee? Two high margin items, such that I could expect to at least break even and possibly even turn a small profit if I didn't have to bring in extra staff. Or would that not be a "big enough" deal for Groupon, or exciting enough to get enough members to sign on for the deal?

#8 Posted by Aaron, CJR on Thu 20 Jan 2011 at 09:03 AM

I'm looking to short Groupon and make big money. Everything happens in cycles. Wait for the right time and short the hell out of this stock. Easy money sitting right in front of your eyes.

#9 Posted by Gary Brook, CJR on Tue 14 Jun 2011 at 09:31 AM