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[oldadjunct]

Ok, fess up who made money on this today?  Midday you might have made  50%, at close you only netted 30%.

Pry?  Pryyyyy?

I would have passed on the IPO even if I had realized it was in the offing.   Their business model is so 80's, requiring boots on the ground to enlist local businesses.

I admit to passing on Google at $80, so whom am I to say?

[prytania3]

I watched it on TV but did not participate. Groupon is too iffy for my tastes. I wouldn't be surprised if it became the next big short (when restrictions don't apply).

I get all the groupon coupons, and a lot of them I would use except they all have time limits (and the windows seem fairly small), and though I may want to have a particular painting reframed at 50% off, I haven't budgeted for it this week. You know what I mean?

[pedanterast]

I don't participate in IPOs because 1) I'm a passive or index-fund investor since I lost interest in actively managing my portfolio and 2) IPOs are rigged.  But this was an interesting analysis:

http://www.montrealfinancial.ca/blog/5-notable-disclosures-in-groupons-financial-statements-and-w.html

I read the S-1 and I thought the statement of cash flows was particularly interesting.  The net operating cash flow is $87 million but that is only because the accounts payable increased by $244 million.  Also about 1/3 of their total assets is goodwill.  The convertible preferred stock represents a substantial potential dilution and also has voting rights based on "multiplying (i) the number of shares of voting common stock into which their shares of Series B Preferred could be converted and (ii) 150" and they have liquidation preference as well!

So the preferred stock is one way this particular IPO is rigged.

[prytania3]

I think as soon as people are allowed to short this stock, they will. The accounts payable is a red flag + dilution + I don't know how many people are actually using it. It's a buy to save product.

Maybe we should start a thread on groupon to see who has used it. I'd be interested to know.

[pedanterast]

I joined hoping for grocery store coupons and instead I saw mostly coupons for manicures and mannequins.  I don't think I ever logged on to it again after the first time.

[pedanterast]

This is from a prof at Kellogg School of Business (Northwestern):

"The firm’s business model concerns me. It has 115 million subscribers. Of those, only 23 million have ever purchased from the firm, implying that approximately 80 percent have never purchased from the firm. Of those 23 million, only 12 million have purchased more than once, implying that approximately half have purchased only once, arguably taking advantage of a great one-time offer. My concern is that firm’s revenues represent “loss-leader” sales. There is no customer loyalty and hardly any barrier to entry in this business."

http://expertlywrapped.wordpress.com/2011/10/27/in-depth-on-groupons-accounting-practices/

I also noticed they had to re-state the S-1 four times, which you can see from the SEC filings.  One analyst's observations:

http://techcrunch.com/2011/07/15/groupon-s-1-key-numbers-missing/

Among the interesting points:  "Starbucks [sic] chief Howard Schultz will make $200,000 a year and get 60,000 stock options for serving on Groupon’s board."  And:  "What proportion of their subscription list was “bought” and hasn’t returned." [sic]

These purchased subscription lists are a big part of the goodwill I mentioned earlier.  This analyst's report was after the FIRST re-statement.  Then we have:

http://seekingalpha.com/article/295690-groupon-s-revenue-half-what-it-originally-stated

"Its first filing emphasized a profit measure, essentially profits less marketing expenses, that was widely ridiculed. That got dropped in the second draft. And now a gigantic restatement of revenue in the third draft."

Then the CEO got busted for violating the "quiet period" rules; that's unethical!

"The clever method Groupon appears to be using to try to get around the SEC's quiet period rule is writing a detailed public communication in the form of a CEO "letter to employees" that Groupon has then distributed publicly with the help of a trusted media outlet.

Read more: http://articles.businessinsider.com/2011-08-26/tech/30097660_1_groupon-sec-rules-investor#ixzz1ct1Jpml8"

Revenue kept dropping as they kept re-stating:

http://www.newenglandpost.com/2011/10/22/6291/

This was particularly interesting in light of my earlier comment about IPOs being rigged:

"But according to Groupon’s SEC filings, $810 million of the $946 million it raised went to early investors and insiders. That includes $398 million to Groupon’s largest investor, shareholder and executive chairman, Eric Lefkofsky."

Then the COO quit to work for Google ...

[octoprof]

I will not invest in a marketing company whose IPO including a non-GAAP imaginary metric identified as earnings before marketing expenses.  Huh? Isn't that just revenues?

[pedanterast]

It's EBBS:  Earnings Before Bad Stuff.  You are so last century.  It's not an imaginary metric; it's an original, creative, contemporary metric.  Now go read Footnote 8 (I think) on the convertible preferred stock.  But only if you want to vomit.

[betty_p]

My instinct would be to short it, and I'm not much of a player.

Pedanterast and Octoprof only confirmed my instincts.

[pedanterast]

Except you can't short it, so that is reason number 827 why IPOs are rigged.  Or reason number 8277.  I forget.

[spork]

As pedanterast has noted with his citations, the business model, if it can be called that, looks unsustainable. The only solution I can see is if Groupon becomes the Facebook of coupons and generates ad revenue from traffic its website.

In the interests of full disclosure, my wife buys restaurant groupons worth $50 for $25. I don't see how increased patronage is profitable over the long term for restaurants when they have to sell meals at such a high discount. The well-established eateries don't need to pull in one-time customers paying half price, and the desperate eateries, by pulling in one-time customers paying half price, will go bankrupt more quickly. So I bet restaurants stop using Groupon.

[octoprof]

It's EBBS:  Earnings Before Bad Stuff.  You are so last century.  It's not an imaginary metric; it's an original, creative, contemporary metric.  Now go read Footnote 8 (I think) on the convertible preferred stock.  But only if you want to vomit.

Earnings before "the cost of the stuff we do to make a living" makes no sense. That's what "earnings before marketing expenses" equates to for a marketing company. It's like a manufacturing company saying "earnings before cost of goods sold" which is just revenues, which is already on the income statement, of course.

I don't know who their internal accountants are, but they are idiots. Not a good sign for the future, that.

[aristotelian]

I am also inclined to short. It was an interesting fad for a while, but I think people are going to get sick of it.