premfan Posted December 7, 2012 Share Posted December 7, 2012 I know know value investing board. What i'm i thinking?! So we know all the problems with groupon and 80-90 percent drop since IPO. Lets look at the actual business economics. After looking at the float/moat presentation i have a bit more clarity with it. Groupon Goods= Its the same business model as overstock. The insane thing about it after one year in operation its rate run is about 1.5 billion. Thats impressive growth although its a low margin business. This shows the power of leveraging the groupon brand. Daily Deal= The daily deal is a high margin business where essentially it gives groupon "float" by getting an advance from customers ( buying the groupon deal). The float is costless cause they are the middlemen in the deal making process. They get a 50 percent split of the total deal. Is the float permanent? I would say yes unless all the customers demand a refund. Negative working capital which means everything is financed by accounts payable and accured expenses. Conclusion I dont have the time to give more of a detail look into groupon, but bascially they create float to finance there business operations. The mistake groupon made is that they tried to grow to fast which elevated there sg & a. They havent reached critical mass yet but they will. Groupon is a innovative company that will create more businesses like groupon goods by leveraging there brand name. I think groupon has zero chance of going bankrupt cause it finances there business with float not LTD. Disclosure: long grpn ( its up 20 + percent today due to google takeover rumors. Its all noise ) Link to comment Share on other sites More sharing options...
Olmsted Posted December 7, 2012 Share Posted December 7, 2012 The "float" from daily deals cuts both ways. It's a blessing if that segment grows or stays the same, it's a big problem if that segment shows declining volume. Link to comment Share on other sites More sharing options...
premfan Posted December 7, 2012 Author Share Posted December 7, 2012 Right float does cut both ways. Groupon adds massive value to its merchants cause its the best way period from a ROI metric to bring customers in. Nothing else is even in the same arena except word of mouth referrals. If there was a better way to get customers in believe me they wont be in business. Bringing new customers in is the most important thing by far for growing a business. There are the best tool for bringing new customers in period in any type of advertising. Link to comment Share on other sites More sharing options...
siddharth18 Posted December 8, 2012 Share Posted December 8, 2012 I feel like I missed the boat on GRPN and GMCR. Both stocks that where overvalued once-upon-a-time. Then fell hard; very hard in fact. At some point each company is worth SOMETHING even when they happen to be universally hated. Link to comment Share on other sites More sharing options...
ItsAValueTrap Posted December 8, 2012 Share Posted December 8, 2012 Aren't Groupon and GMCR very obvious shorts? *I am short GMCR. Both stocks have very high short interest. The borrow on Groupon is ridiculous so I'm not that interested in shorting it. At some point each company is worth SOMETHING even when they happen to be universally hated. Most companies on the stock market eventually go bankrupt... Link to comment Share on other sites More sharing options...
DCG Posted December 8, 2012 Share Posted December 8, 2012 I wouldn't say their float (if you want to call it that) is priceless. They're paying their sales people a lot of cash to get these deals. Link to comment Share on other sites More sharing options...
premfan Posted December 8, 2012 Author Share Posted December 8, 2012 I wouldn't say their float (if you want to call it that) is priceless. They're paying their sales people a lot of cash to get these deals. Hey great point. Groupon is slowly starting to cut down there sales team due to automation of the deal making process. Groupon has reached a point where merchants know what they offer and they know it works due to testimonals in there field ( social proof). Since merchants know its the best way to bring customers in they have social proof which creates a sense of trust. There is less "selling" to create the deal. Merchants are seeking groupon and its not a demand problem its mostly a supply problem. They are still not in all areas of the market. The more automation of the deal making process the greater scale they can reach with less employees. If they can double or triple the merchants per account manager then that small change creates a "tipping point". Where the SG & A gets lower and they eventually reach all or most markets which creates HUGE increases in gross profit. The mistake they made is they increased there workforce without the proper infrastructure in place to maximize there productivity per deal. So tipping point in overview for groupon is Automation of deal process + more markets= less employees and HUGE increase in gross profit due to lowered SG & A per percent of revenue. Link to comment Share on other sites More sharing options...
siddharth18 Posted December 8, 2012 Share Posted December 8, 2012 Aren't Groupon and GMCR very obvious shorts? *I am short GMCR. Both stocks have very high short interest. The borrow on Groupon is ridiculous so I'm not that interested in shorting it. At some point each company is worth SOMETHING even when they happen to be universally hated. Most companies on the stock market eventually go bankrupt... In hindsight, GMCR was a decent value at $18 a share... Link to comment Share on other sites More sharing options...
writser Posted December 9, 2012 Share Posted December 9, 2012 Was it a decent price because the stock doubled up in two months? Or was it decent value because the company was unreasonably valued? I'm not sure about the latter one. I'm also not sure about the integrity of management. Link to comment Share on other sites More sharing options...
premfan Posted December 9, 2012 Author Share Posted December 9, 2012 Was it a decent price because the stock doubled up in two months? Or was it decent value because the company was unreasonably valued? I'm not sure about the latter one. I'm also not sure about the integrity of management. I think a better way to think of it is the market in the short term is a voting machine. The market HATES groupon and has already cased there ballot. Nothing is going to change that perception except sustainability. Everything is not sustainable. Until it eventually is or dies. So the question is what can happen to make groupon unsustainable and die? Please someone answer this and i can change my thesis. The market is betting groupon wont be around in 2-3 years. I'm willing to take that bet based upon my qualititave framework. Link to comment Share on other sites More sharing options...
writser Posted December 9, 2012 Share Posted December 9, 2012 My previous quote was referring to GMCR. Regarding Groupon: as far as I know they haven't shown a profitable year so far so I would turn around your question into: "what can happen to make Groupon sustainable and live?". I have no clue: I don't see a strong moat, they don't make money and there are no barriers for competitors. On top of that they use(d) dubious accounting practices and there is no margin of safety in the balance sheet. I have no strong expectations about the future either way (i.e. huge success or failure) so I would focus on historical results and from what I have seen so far this does not qualify as a 'value' investment for me. I'd rather buy ZYNGA if I want to speculate on growth: at least they have 3/4th of their market cap in cash and have shown that they can be profitable. Link to comment Share on other sites More sharing options...
Guest valueInv Posted December 9, 2012 Share Posted December 9, 2012 Was it a decent price because the stock doubled up in two months? Or was it decent value because the company was unreasonably valued? I'm not sure about the latter one. I'm also not sure about the integrity of management. I think a better way to think of it is the market in the short term is a voting machine. The market HATES groupon and has already cased there ballot. Nothing is going to change that perception except sustainability. Everything is not sustainable. Until it eventually is or dies. So the question is what can happen to make groupon unsustainable and die? Please someone answer this and i can change my thesis. The market is betting groupon wont be around in 2-3 years. I'm willing to take that bet based upon my qualititave framework. There's a guy called Rocky Agrawal who has written extensively on Groupon's business model flaws at Techcrunch. Check his articles out. He essentially predicted the situation Groupon is in right now. Link to comment Share on other sites More sharing options...
Palantir Posted December 9, 2012 Share Posted December 9, 2012 These guys are generating FCF and have 1B in cash......tasty.... Link to comment Share on other sites More sharing options...
premfan Posted February 16, 2013 Author Share Posted February 16, 2013 I love how Mr. Market in November was saying the business model is unsustainable and the company is going bankrupt when it was NO LTD. Its been a good spec so far ( the only spec in my portfolio). It will be interesting to see if their European operations recover from the last quarter. I love the service and its still by a mile the best way to get traffic in your business. Link to comment Share on other sites More sharing options...
Palantir Posted February 16, 2013 Share Posted February 16, 2013 Dude this is undervalued. I need to revaluate my opinions. I hope you bought this? Link to comment Share on other sites More sharing options...
premfan Posted February 16, 2013 Author Share Posted February 16, 2013 Its a 8 percent position and currently classifed as a spec. I need more info to make this a long term investment. Its still too early in the game. Also its next to impossible to value. My mental checklist while making the investment: 1.)Whos my partner? = Tiger Global and the big three who owns 20 plus percent of the company 2.)Whats the cataylst ? = Continued revenue growth and the google "put". Google reportly offered 6 billion to buy company when revenue was in the 1 billion range. 3.)I'm i uncomfortable making this purchase?= yes to some degree. The best investments are when you are uncomfortable making them. 4.)Short term risk of bankrupty?= No. Company has no LTD 5.)Wall street consenous= Extremely overly negative. Wall street HATES the Ceo. Wall street thinks the company is going bankrupt ( remember no LTD) and its unsustainable. One of the most hated companies in recent memory. 6.)How big is there market= Massive. E-commerce and daily deals. 7.) Is it cheap?= YES. when i made the purchase the key metrics were silly cheap. Link to comment Share on other sites More sharing options...
Palantir Posted February 16, 2013 Share Posted February 16, 2013 What is your understanding of potential barriers to entry? How well are they handling mobile biz v desktop? Link to comment Share on other sites More sharing options...
Guest hellsten Posted February 21, 2013 Share Posted February 21, 2013 What is your understanding of potential barriers to entry? How well are they handling mobile biz v desktop? There's a Groupon clone in every city and country, but Groupon probably has some kind of minor moat. Here's what happened to early investors in LivingSocial: http://www.privco.com/livingsocial-receives-emergency-110m-cash-infusion-from-existing-investors-to-avoid-bankruptcy Today's Participating Investors Effectively Now Own The Entire Company Common Stock and Shares of Company's Employees Now WORTHLESS http://staticapp.icpsc.com/icp/loadimage.php/mogile/978171/b33bdb100dd8f0a1cd5f858307fc5085/image/jpeg IMO most social media startups and companies are/were basically scams at IPO (Zynga, Groupon, etc). More on LivingSocial: http://finance.fortune.cnn.com/2013/02/21/what-really-happened-at-livingsocial/ Link to comment Share on other sites More sharing options...
premfan Posted February 21, 2013 Author Share Posted February 21, 2013 Agreed it was silly to play 10x revenue for the tech IP0's. Living Social was just a copycat of groupon. They tried to scale up fast and it was working for a bit. The problem with daily deals is its extremely easy to start but challenging to scale. The reason the scaling is challenging is due to the number of small businesses that meet the standards to do a daily deal. Its not like the trend has been job creation via small businesses. Also its compounded due to banks being tougher with there loan requirements. So its a supply problem ( variety of deals) not a demand problem. So there is a fixed piece of the pie that livingsocial and groupon were attacking. Groupon is the innovator and brings in the most traffic due to there collective buying model. Living Social doesnt do the collective buying model. The collective buying model triggers impulse buying and creates a sense of comfort in there purchase and a lack of buyers remorse. So when you see 500 other people buying that item or getting that deal it creates social proof. Also groupon is pivoting constantly and is not strictly a daily deals company anymore. I'm thinking the e-commerce business will account for most of the revenue this year. E-commerce is intrinsically a low margin business ( unless its vertically aligned) so its vice versa of the deals business. Its much easier to scale and creates another service in the groupon platform. What i like about groupon is the platform that they are creating. They keep pivoting and entering new markets while increasing there platform ( by having more services for the customer). Finally it does appear groupon creates "float". The "float" created has allowed them to pivot into e-commerce. Not like insurance float but, non traditional float. Its the subscripton float model where a customer buys upfront for a groupon. The merchant keeps half and groupon pockets the rest. For every groupon purchased its ala a subscription fee for that service. I dont know if they changed this but, they used to wait 3 months to pay the merchants. So they have 3 months to gain interest on other peoples money until they give the merchant there cut. Link to comment Share on other sites More sharing options...
DCG Posted February 28, 2013 Share Posted February 28, 2013 Down 25% after hours after posting a loss. Link to comment Share on other sites More sharing options...
premfan Posted February 28, 2013 Author Share Posted February 28, 2013 At first glance numbers look solid. Although, the international business is severely lagging behind the north american business. Not sure if this a trend or just indicates how bad everything in europe is. I think the markets expectation is still too high for groupon. I'll have to study the numbers more and listen to the conference call. But overall the numbers at first glance look solid and the market is mainly reacting to the Q1 guidance. Link to comment Share on other sites More sharing options...
Guest hellsten Posted February 28, 2013 Share Posted February 28, 2013 People of Groupon, After four and a half intense and wonderful years as CEO of Groupon, I’ve decided that I’d like to spend more time with my family. Just kidding - I was fired today. If you’re wondering why… you haven’t been paying attention. From controversial metrics in our S1 to our material weakness to two quarters of missing our own expectations and a stock price that’s hovering around one quarter of our listing price, the events of the last year and a half speak for themselves. As CEO, I am accountable. You are doing amazing things at Groupon, and you deserve the outside world to give you a second chance. I’m getting in the way of that. A fresh CEO earns you that chance. The board is aligned behind the strategy we’ve shared over the last few months, and I’ve never seen you working together more effectively as a global company - it’s time to give Groupon a relief valve from the public noise. For those who are concerned about me, please don’t be - I love Groupon, and I’m terribly proud of what we’ve created. I’m OK with having failed at this part of the journey. If Groupon was Battletoads, it would be like I made it all the way to the Terra Tubes without dying on my first ever play through. I am so lucky to have had the opportunity to take the company this far with all of you. I’ll now take some time to decompress (FYI I’m looking for a good fat camp to lose my Groupon 40, if anyone has a suggestion), and then maybe I’ll figure out how to channel this experience into something productive. If there’s one piece of wisdom that this simple pilgrim would like to impart upon you: have the courage to start with the customer. My biggest regrets are the moments that I let a lack of data override my intuition on what’s best for our customers. This leadership change gives you some breathing room to break bad habits and deliver sustainable customer happiness - don’t waste the opportunity! I will miss you terribly. Love, Andrew Source http://news.ycombinator.com/item?id=5301146 Link to comment Share on other sites More sharing options...
stahleyp Posted February 28, 2013 Share Posted February 28, 2013 "I’ve decided that I’d like to spend more time with my family. Just kidding - I was fired today." haha. epic. Link to comment Share on other sites More sharing options...
Palantir Posted February 28, 2013 Share Posted February 28, 2013 Brilliant. I love these guys and their sense of humor. Especially that "they cook a mean fish curry" Tibet ad. Link to comment Share on other sites More sharing options...
biaggio Posted March 1, 2013 Share Posted March 1, 2013 People of Groupon, After four and a half intense and wonderful years as CEO of Groupon, I’ve decided that I’d like to spend more time with my family. Just kidding - I was fired today. If you’re wondering why… you haven’t been paying attention. From controversial metrics in our S1 to our material weakness to two quarters of missing our own expectations and a stock price that’s hovering around one quarter of our listing price, the events of the last year and a half speak for themselves. As CEO, I am accountable. You are doing amazing things at Groupon, and you deserve the outside world to give you a second chance. I’m getting in the way of that. A fresh CEO earns you that chance. The board is aligned behind the strategy we’ve shared over the last few months, and I’ve never seen you working together more effectively as a global company - it’s time to give Groupon a relief valve from the public noise. For those who are concerned about me, please don’t be - I love Groupon, and I’m terribly proud of what we’ve created. I’m OK with having failed at this part of the journey. If Groupon was Battletoads, it would be like I made it all the way to the Terra Tubes without dying on my first ever play through. I am so lucky to have had the opportunity to take the company this far with all of you. I’ll now take some time to decompress (FYI I’m looking for a good fat camp to lose my Groupon 40, if anyone has a suggestion), and then maybe I’ll figure out how to channel this experience into something productive. If there’s one piece of wisdom that this simple pilgrim would like to impart upon you: have the courage to start with the customer. My biggest regrets are the moments that I let a lack of data override my intuition on what’s best for our customers. This leadership change gives you some breathing room to break bad habits and deliver sustainable customer happiness - don’t waste the opportunity! I will miss you terribly. Love, Andrew Source http://news.ycombinator.com/item?id=5301146 Refreshing for a change. Got to give him full credit. Link to comment Share on other sites More sharing options...
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