$GRPN Groupon IPO up 50% what a steal! Of foolish investor capital, that is…

(TheMarketTicker) “Like paper coupons a Groupon has a ‘use by’ date. They’re attempting to leverage social media to ‘widely distribute’ the Groupons to consumers, and for this they get a piece of the action. The merchant effectively pays a ‘vig’ to Groupon for running the distribution system and collecting the money; once a Groupon is redeemed the merchant gets the paid price less a discount.”

“You, the merchant, are selling a “regular” $40 product or service for $20.  But in fact it’s not $20; Groupon takes a piece of the ‘sale price’ of $20 as well, so you might receive $18.  And you receive it late: The consumer buys the Groupon from Groupon.  This goes to Groupon’s balance sheet as ‘cash’ and the payment to the merchant is an accrued liability.  The merchant gets paid only when the groupons are redeemed.”

Essentially Groupon ‘lives’ on the float. .. the firm is surviving on two things, neither of which is likely to continue: 1. Non-redemption – the consumer buys and then doesn’t use.  2. Delays in payment – Groupon ‘aggregates’ these coupons and pays merchants when the aggregation reaches a given level.  They have the use of the money in the meantime.  That’s nice for them, not so nice for the merchant who just delivered a good or service they didn’t get paid for in the present tense!

“I don’t like this one bit as a prospective merchant – especially the second. .. As a consumer I’ll buy a $20 pizza for $10 (one of the deals being offered right now in my area.)  But the entire reason I’ll go to that pizza place is that the pizza is $10 — at $20 I’m not a customer!  In this particular case the merchant gets nothing for their trouble except a guaranteed loss and delayed payment!  It’s not a ‘loss leader’ as I won’t come back without the discount, it’s a loss maker.

“I don’t see the business case for this company as I don’t see the sell-through on a consistent, forward basis.  Consumers will always take something for free: The store willing to give away steak will give away every piece of it they have!  That’s not the question: Will the people then come back and pay full price for the second slab of meat?

Full Story: Groupon: Another Pets.Com (TheMarketTicker)

Groupon isn’t even profitable, though losses “appear” to be narrowing. It posted a net loss of $10.6 million in the third quarter, compared with a net loss of $101.2 million in the second quarter. And for the short period of time the stock was trading north of $30/share, the company was being valued above $19 BILLION. Even if they earned $100 Million next year, that would be about equivalent to receiving 1/2% annual interest that you can’t collect for all the risk incurred. And people wonder why they lose money investing… Well, it should at least make for some “fun” bubbley chatter at the next cocktail party.

Anyway, back to watching investors play hot potato with $GRPN.

First day of trading UPDATE:


by on Nov 4, 2011, 11:44am Share
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