(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:

(Interloper) “There is no conspiracy as to the selection of IPOs and secondary offerings beyond popularity. They are giving you what you want, what they can sell, and in a number of instances its crap, either in terms of objective business quality or the valuation levels stipulated at issue.”

“It is an axiom among professionals marketing investment ideas to long-only funds or individual investors (for all their faults, hedge fund managers are much better at this) that you know you have a great investment idea when it is completely unmarketable. Publish as many copies as you want, but stock ideas in out of favor sectors will sit and gather dust until the paper rots. What sells, both in term of ideas and new stock, are those in sectors that have been gapping higher for the longest time, despite the risk that said trend is nearly exhausted and valuation levels are approaching the ridiculous.”

“When you’re young, you look at television and think, There’s a conspiracy! The networks have conspired to dumb us down. But when you get a little older, you realize that’s not true. The networks are in business to give people exactly what they want. That’s a far more depressing thought. Conspiracy is optimistic! You can shoot the bastards! We can have a revolution! But the networks are really in business to give people what they want.” — Steve Jobs (1996 Wired Magazine Article, Steve Jobs: The Next Insanely Great Thing)

“Referring back to Jobs’ quote, the fault is not in the networks or the investment banker, it’s with the audience.  If PBS started getting monster ratings for in-depth, intelligent documentaries, the other networks will quickly follow suit.  In exactly the same way, if investors stopped buying secondary offerings in hot sectors, which they freaking know is a bad idea but can’t help themselves, and entertained the better risk/reward potential of out of favor ideas, they would get more of them.”

Full Story: Zero Hedge, Steve Jobs and who’s really responsible for the despicable cesspool of new stock issuance (Interloper)