TECH WRECK - GRPN UPDATE

COUPONS EVERYWHERE
In November of 2011 I posted an update on Groupon and essentially said it was terrible as it made its IPO debut.

A BAD TASTE IN YOUR MOUTH

Ultimately I felt that Groupon (GRPN) was a strong short because its business model was easy to replicate and it really wasn't fairly valued after its IPO which vaulted it into the stratosphere.  I made the argument that GRPN was simply a tech bubble fantasy that would crash back to earth.

A ZERO?
In early November, Groupon reached a price of $30.00 a share and on the 22nd of November it was already trading at $22.  In my year-end kickoff post, CONFIDENCE LOST, 13 PREDICTIONS FOR 2012, I went further as I wrapped up the article with the following quote;

"Groupon will be one firm that is out of business in the next 5 years and therefore it is clearly an equity to focus on (to short) if it can ever gain any traction and get a bounce."

Let's check back in on this great technology story and check out where it is trading and where it might be headed.  Please examine the chart below;

WHERE IS IT HEADED?
I will spare you the sophisticated technical analysis on this $3.90 stock, and summarize this view on GRPN with this final thought on "Groupon still hasn't formed a bottom".

OTHER TECH NAMES
As I wrote in an recent article, I have softened on LinkedIn (LNKD), I think that is one of the few "internet firms" that has a real business and could be amazing.  The chart looks ok here too, unless it falls through $101.  I love to shop using Priceline (PCLN), but that chart looks really shortable after the monster gap up last week.

THE FUTURE
The election is tomorrow and I am simply praying that God would give us the candidate that he has for us rather than the leader we are asking for.  I'll give you a hint about the people of Israel, it didn't work out very well when Saul was named their king.

1 Samuel 8: 6-20


⁶ But when they said, “Give us a king to lead us,” this displeased Samuel; so he prayed to the Lord. ⁷ And the Lord told him: “Listen to all that the people are saying to you; it is not you they have rejected, but they have rejected me as their king. ⁸ As they have done from the day I brought them up out of Egypt until this day, forsaking me and serving other gods, so they are doing to you. ⁹ Now listen to them; but warn them solemnly and let them know what the king who will reign over them will claim as his rights.”
¹⁰ Samuel told all the words of the Lord to the people who were asking him for a king. ¹¹ He said, “This is what the king who will reign over you will claim as his rights: He will take your sons and make them serve with his chariots and horses, and they will run in front of his chariots. ¹² Some he will assign to be commanders of thousands and commanders of fifties, and others to plow his ground and reap his harvest, and still others to make weapons of war and equipment for his chariots. ¹³ He will take your daughters to be perfumers and cooks and bakers. ¹⁴ He will take the best of your fields and vineyards and olive groves and give them to his attendants. ¹⁵ He will take a tenth of your grain and of your vintage and give it to his officials and attendants. ¹⁶ Your male and female servants and the best of your cattle^[a] and donkeys he will take for his own use. ¹⁷ He will take a tenth of your flocks, and you yourselves will become his slaves. ¹⁸ When that day comes, you will cry out for relief from the king you have chosen, but the Lord will not answer you in that day.”
¹⁹ But the people refused to listen to Samuel. “No!” they said. “We want a king over us. ²⁰ Then we will be like all the other nations, with a king to lead us and to go out before us and fight our battles.”



Have a great week

GOATMUG

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 athttp://www.goatmug.blogspot.com/

THE FACEBOOK ECONOMY

I had an interesting discussion with a friend the other day when he asked me if I spent anytime on Facebook.  I answered that I didn't "do" Facebook since I was too busy.  (There are a host of other reasons of course, but that's another topic).

I asked him why he Facebooked and he suggested that he did it to keep in touch with people and to network a bit.  I told him that I had read an article recently that had stated that research is beginning to show that Facebook makes people depressed.  To my surprise, he totally agreed.

FACEBOOK LEADS TO DEPRESSION

"The researchers who conducted the analysis noted that “for a significant number of users, the negative effects of Facebook outweigh the benefits of staying in touch with friends and family."

"Things like rejected friend requests caused 32 percent of the people who participated in the study to feel guilty -- and 12 percent of the people said that Facebook just made them generally anxious."

When I read these items about Facebook, there is certainly part of me that is relieved that I don't participate!  

As we closed our conversation I also considered something else that might add to poster's stress, that Facebook lives are not real.  Let me give you an example.  

FACEBOOK DISTORTION

During the holiday season, my wife received a wonderful Christmas card from a person we know.  The lovely card pictured a charming couple holding their 1 year-old baby.  The family hugged and seemed happy to be together to celebrate a beautiful Christmas season.  While everything in the photo and card seemed perfect, the truth is that this couple is separated and living in separate homes.  The father never sees the child and has begun a relationship with another woman.  The appearance of the father in the picture is quite odd, since it isn't an accurate depiction of reality at all.  But there you have it, the woman and the man set up a time to create this photo-op and staged a classic Christmas tradition for all of their "friends and family".  

In some ways, I suspect that just like this holiday card, Facebook is represented by this distortion of reality as well.  Sure, you can un-friend your spouse, but my guess is that members of Facebook (in general) don't highlight that they just had a fight with their husband, got fired for being a terrible employee, or have a kid that is abusing drugs in school.  In other words, Facebook probably is a depository of the version of life that we wish we had where all the good things get posted and none of the bad things get attention.   

FACEBOOKED

As I continue to think on this topic, I realized that our economy and the investing markets are very much like a Facebook post.  We are told all the good things like employment is getting better, rail shipping is at highs, consumer spending is rebounding, companies are starting to hire, but all of that seems hollow as we really measure it against reality.  Think about it, our DJIA is nearing levels we haven't seen since May of 2008 so the logic must be that if the market is really improving, then all of the credit issues and insolvency problems we've faced are well in the rear-view mirror.

Unfortunately, we too know there is an another, real reality in our economy.  In this version, we know that job seekers cannot find a great job, that employees work long hours because they feel threatened  that they may be replaced if they don't work more, we know that money is very tight, and our government continues to take more and spend without constraint while promising more benefits.  In addition to that list, Europe is even worse!  

TRADING PERSPECTIVE

Simply look at the last 26 trading days and you'd be hard pressed to discern that there was any problem in the global economy by looking at the stock market.  Its upward march has been a thing of beauty!  Yet, underlying the wonderful performance, we know that there is a lingering, even gnawing sense that there are other issues that must be tackled for real price action to propel markets higher.  Even with my beginning of the year call for higher markets through April, I do believe that markets do need to pause here and even pull back.  Take a look at almost any chart and they are ramming headlong right into previous highs.  Without some sort of new and positive news, there is no chance that they ramp higher.  If you've been in great dividend payers that have made lots of ground, sell them and reload later!  No one ever did poorly by locking in profits.  If you find yourself questioning this notion, at least set stops in case the reversal really gets going.  

The best case scenario for bulls is that we consolidate here and then push higher on great news, however I actually believe we'll pull back 3% to 5% and then hold for another push higher with a few more words from our benevolent leader in the Federal Reserve.

FACEBOOK IPO

Perhaps we started talking about Facebook as a result of the news leak that Facebook is preparing to unleash its IPO on the world in the coming months.  While I have no doubt that the IPO of Facebook will bring billions of dollars of wealth upon Mark Zuckerberg and many others that somehow joined the firm over the years of its infancy, I have to question if the general investing public will be so lucky.  Certainly, recent tech IPOs leave us with feelings of the dot.com era rather than a sense that these firms are long for the investing world.  Friends on Slope suggest that Facebook is different, that the very name Facebook is part of our daily lexicon and therefore it will be a winner like Google.  Perhaps.  We will certainly see, but isn't it interesting that Facebook's timing could be almost perfect as the estimated IPO date may be in mid-May, right where I have indicated that I see the top in the market for the year.  

Before I go, I wanted to check back in on GRPN since I have publicly stated that I think this is the worst of all the new and hot IPOs that hit the market last year.  The business is one that is easy to replicate and unfortunately for many of the clients the results have been very negative.  Have a glance at GRPN's chart.  If we were trying to spin this for a Facebook post, what would we say?

GOATMUG

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 http://www.goatmug.blogspot.com/ 

GROUPON (GRPN)- A BAD TASTE IN YOUR MOUTH

NEW IPO, SAME OLD SCAM
Groupon (GRPN) is a company that recently held its IPO (initial public offering) where it went public and attempted to squeeze in its fundraising in before the equity markets closed.  Other firms like LinkedIn (LNKD) and Pandora (P) all paved the way for the final scam which is eerily similar to the 2000 Tech Bubble days.

I've felt that many of these firms were not quite worth their initial stock prices, but for me, Groupon is among the worst of the bunch.

Why would I doubt the merits of this company?  I'll list a few below;

1)  NOTHING ABOUT IT IS UNIQUE
The GRPN business model is easy to replicate.  In fact, LivingSocial, is a player in the space that has been operating globally since 2009.  Unfortunately for GRPN, if I had a list of several thousand email addresses, I too could easily go into this business.

2)  GRPN HAS NOT BEEN PROFITABLE
The company took in $1.3 Billion in sales and lost almost $700 million.  GRPN has about $250 million in cash on it's balance sheet.  The argument is that GRPN needed to raise cash so it could scale up its business, I would suggest that it needed to stay put and make its business profitable before taking investor money.

3)  CLIENTS AREN'T PROFITABLE
It seems that it isn't only Groupon that is unprofitable.  Essentially Groupon is used by many retailers as a loss leader in an attempt to get people in the door.  The pitch is simply once they get in the door and try your product, they'll become clients.  In the case I included below we find that if the retailer or small business survives the encounter with Groupon, they probably won't be inclined to sign up again.

London Baker's Experience With Groupon Leaves Bad Taste In Mouth

The baker in the story was overwhelmed by the purchases of 75% off coupons for her products.  In fact, the baker priced their product in such a way that she lost about $3 per dozen cupcakes she sold.  In addition, she had to keep staff working overtime and ultimately lost $20,000 in the experiment with online coupons.

As we evaluate her experience, we must conclude that the baker made a few bad decisions.  So let's not "sugar coat" this.  She obviously didn't understand the demand that the coupon would have.  She obviously didn't price the coupon correctly, and she didn't put a cap on the number that could be sold.  All of these are absolutely correct, and frankly this is in line with what I see from many small retailers, they simply don't understand business and risk mitigation.  This is why so many fail and so many sign up for long term leases at rates that kill their business before they even start.

With all of those items noted, we still need to recognized that the Groupon sales person also is at fault.  Why didn't they put a cap on the sale for their client's first experience?  Why didn't they encourage the client to price their sale appropriately?

Ultimately, Groupon will lose a potential repeat customer because the baker took a bath AND the story hit the national and world media they will probably also lose potential customers.

MARKETING IS GOOD, EXTREME VALUATIONS AREN'T
Look, as a business owner I have always distrusted "marketing" because it is fuzzy and often it isn't measurable.  I do not hate the idea of email coupons, in fact, I have bought a few before (I absolutely hate the rules and conditions they place on them).  In fact, I think that Groupon's business could be a powerful tool for a small business owners to make a quick name for themselves and build a business.  The trouble I have with Groupon is simply that it isn't an "internet company" and doesn't deserve valuations that are sky high and neither do firms like Linked In that ARE internet businesses.  Valuation is important and we've seen that crazy valuations often result in heartaches.

4)  THE CHART IS SICK
While there is not much data here in about 20 days of trading, the chart looks like it will break through the lowest point it has had in its short trading history.  In fact, as I am writing, it has fallen through $22.72 which I identified as support.  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

GOATMUG

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 athttp://www.goatmug.blogspot.com/