Thursday, August 23, 2012


The problem with getting things right every once in a while (blind squirrel) is that you begin to look like an a-hole when you bring it up.  I actually wrote a couple of posts in the last 8 months that have absolutely nailed some big moves downward in crazed stocks.  Unfortunately, I found one on CMG that was simply brilliant, but was stuck in my "draft" file that was never published.  On the other hand, I've been quite public about my disbelief about Groupon and it's ability to achieve the lofty expectations and valuation that the market gave it earlier this year.

Please take a look at this link - GRPN - Same Old IPO Scam
In this post I highlighted how bad Groupon has been for a few businesses that used their services, how easy it was to replicate Groupon's services, and how sick the chart looked.  The last line of the article can help summarize how poorly I felt the trading prospects for this dog were, "I can't even identify any support below this level, so unless we get back up on the close, I think it is a stock you can short with impunity."

So, eight months later we can see that GRPN has been destroyed from the $20 to $30 IPO range to its current price of $4.50 (OUCH!).  Let's revisit the stock and see if anything looks interesting as we delve into Groupon's plans to revive itself.


In the article we hear that Kal Raman is attempting to reduce the sales force, fix their payment system which has been called an accounting scam, and push new technology.  All of these problems are real and should be addressed but I am skeptical that if they are fixed that they will bring about any real change to the firm.

First, Groupon is apparently bloated with a huge sales force for what they actually produce.  Clearly if the sales reps are not bringing in substantial deals they need to trim the fat.

 Second, their payment system has been said to essentially be based on holding back customer (vendor) revenue and potentially counting it as Groupon revenue.  Raman must fix anything that could be looked upon as a scam or accounting loophole.  Apparently, GRPN would receive money from online buyers, pay 1/3 out to business owners upon purchase, and hold back the remaining for several months.  In addition, they would pay out these slugs of payments via check.  This is amazingly odd since Groupon was said to be a technology company and this was the reason for the obscene valuation at the time of the IPO.  I would imagine that a technology company could set up immediate payment systems that used direct deposit, wouldn't you?

Whatever you may say about the accounting, the slow payments must have absolutely killed many of the small businesses they were working with as cash flow issues are the biggest problem that most micro-firms face.

Uh oh.  Here we go again.  I've heard that new advances in technology were going to save companies since I've been around stocks.  I think Groupon should have already had real-time metrics available to clients so they could monitor their future-client purchases and even stop selling them if they desired at any given moment.

Groupon's new software called Coffee is reported to be able to show reps from the firm other deals they have sold to businesses nearby in order to frame the sale better and present similar ideas to new customers.  I am not sold that new technology does anything to change the problems at this firm.

At the end of the day all of these changes make Groupon better, but at the real problem with Groupon is that it was over-valued and was a company that had no real or unique key that was a barrier to entry or replication.  In fact, Groupon was the biggest coupon seller online anyway, Living Social had been at work for years and had done a much greater volume of business, Groupon just had a better team of underwriters and VC firms greasing the markets to swallow another over-hyped and over-valued "online" game-changing business.  I don't believe that Facebook is as bad as Groupon, but it is clear that the same type of market-bringing strategy was used in both names.

I don't think it matters if Raman can implement the fixes he has been brought in to address.  Groupon is frankly a coupon company that uses an email distribution list to sell its wares.  Give me a list of 500,000 email addresses that I could probably purchase from Linkedin and I bet I could replicate Groupon's business quite easily.  By the way, I have softened my dislike of LNKD, of all the internet IPOs we have seen, it may possibly be the only real-deal out there.  It is hard to continue being short GRPN, I'd simply suggest that it is a zero and that it will not be a viable investment candidate......ever.

Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments at