Will There Be A Groupon Groupon?

That’s not my joke, but I’m borrowing it.

In my post of, ok, more than a year ago, I thought that the Groupon IPO was a bad idea. Not for Groupon nor its shareholders (those whose shares were liquid), since this was their only real opportunity to make money, but for the rest of the venture-funded startup ecosystem, investors and entrepreneurs alike.

It’s not that I got everything right – if I was right *all* the time then I would just be obnoxious – but fundamentally my arguments were sound.

And that’s perhaps where it starts: the fundamentals. Groupon, even in spite of its massive revenue numbers, was never a sustainable business. Three main issues contributed to this: workforce (massive and lacking in hard sales experience), cash flow (what comes in must go out, and what goes out is paid from the new stuff that comes in – sort of like your pension…), and value proposition (a 75% loss on each sale with an iffy prospect of landing a lasting customer).

From its IPO price of $28 it has tumbled to $2.63 and has lost over 90% of its value (http://www.valuewalk.com/2012/11/groupon-inc-grpn-stock-is-now-down-over-90-since-its-ipo/). While it didn’t have the extreme effect I thought it might on the venture-backed IPO market, that, the poor performance of Zynga, and the shaving of half off the market value of Facebook shares, have caused some companies to reconsider going public in the current environment.

In fairness, Facebook is probably currently priced where it really should be, if not a bit high. Facebook went public at the zenith of its value, maximizing returns to its shareholders and bankers, which is exactly what the investment bankers are paid to do. Let’s not forget that FB management had really no choice but to IPO under SEC rules regarding the number of shareholders a corporation can have, and probably would have preferred to wait.

All this seemed obvious to me at the time without doing any deep analysis of the company. Where was the tech or financial press? What does this say about the lack of critical thinking we apply to the reports we read? Just gospel, ain’t it.

Between us, even if I get a Groupon Groupon, I’m not planning on using it.


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