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The VCs aren't in the business to break even on their investment. They'll hold at least some of the stock. I personally think it'll be a good long-term investm

The VCs aren't in the business to break even on their investment. They'll hold at least some of the stock. I personally think it'll be a good long-term investment. Connecting online and offline behavior for small businesses - that's gold. The current state of the industry might be irrational, but so was internet advertising in the 1990s.

fennecfoxen 15y ago
It's a solid business, sure, but look at the risk level of the investment and not just the business. The long-term stock market average is around 7% (and you can always invest there instead). A hot technology IPO like this is risky. What kind of a premium do you demand for taking this risk? You don't just buy a hot stock and expect its price to sit there; they have Treasury bonds for that. How much growth do they need to pull off 7%+ return on your investment? Do you think that's realistic, given the competition and the amount they're spending on acquiring customers? Or have they already priced in most of that growth, leaving very little for you? If you don't have a numerical answer for these questions, you're gambling, not investing.
driverdan 15y ago
You're assuming they find a way to acquire and retain customers while eliminating their horrible burn rate.
- gyardley 15y ago
  Every bit of consolidation in the market - and there's going to be a lot more consolidation - drops Groupon's customer acquisition cost, as less companies compete for the same inventory. In the meantime they've built up an incredible amount of in-house traffic-buying expertise. In their unprofitable push to get huge, Groupon bought every type of ad unit available. I wish I had a sliver of the data available to their ad buyers.
- ForrestN 15y ago
  http://www.businessinsider.com/groupon-q3-2011-10 http://www.businessinsider.com/groupon-q3-2011-10 They seem to be growing while gradually reducing their marketing spend, just as they said they would while everyone was hemming and hawing about their "horrible burn rate." As they've said, the spend was about growing a huge list, which would create the kind of barrier to entry that so many skeptics have been saying they desperately need. Now that they have a massive list and are getting closer to having most of the deal-seekers accounted for, they can slow down on acquiring new people for the list and focus on converting on the giant list they already have. I'm not saying they, or their IPO, will be particularly successful (I have no idea), but the reactionary criticism that has plagued them surely took a hit following their filing today.
  - wnight 15y ago
    Not my criticism. For one, their list is public. Nobody else needs to generate leads - and these are already qualified as being willing to buy a similar service. Simply scrape the list of companies offering coupons. Second, they can't enforce a monopoly. Companies will offer coupons through all available players and keep track of the performance of each individually. They'll always be actively competed against by competitors who can copy any of their good ideas without being locked into any of their bad ideas. Third, deal seekers are notoriously willing to comparison shop. There's absolutely nothing keeping them at Groupon. All the coupon shoppers I know use multiple sites, it's part of the fun. Where's $11B in value?
    - pbreit 15y ago
      Weak analysis. The first point doesn't make sense. The email list is definitely not public. No, it's not a monopoly but it does have monopoly-like qualities (consumers go where deals are, businesses go where consumers are). Third, coupon shoppers do not dictate where the deals originate. Is the fastest growing business in the history of the world, one grossing $430 million/quarter (mind that this is the lower number), worth $11b? Apparently, yes. And I suspect it will both raise that number as well as pop at the opening.
      - wnight 15y ago
        > Weak analysis. The first point doesn't make sense. Not at all. You just didn't get it at first glance. The email list itself isn't public, but by its very nature, use of Groupon is. Anyone who wants to market to those customers can just email marketing@groupon's.customer.com and find a qualified and interested customer - just itching to save more money. Groupon's chunk is HUGE for what they provide. > consumers go where deals are, businesses go where consumers are It's not that anyone goes, that's so bricks and mortar it's funny. Nobody (who likes coupons) is put out by reading another page or another email. They seek this stuff out. It's what they do. And businesses don't need to "go" anywhere either. They simply file exactly the same coupon on two sites, like a person selling a couch on craigslist and kijiji. As for their gross, wake me when they've got a net that isn't an accounting error. They're approximately 13 billion years from earning that $11 billion market cap if you're speaking actual money, that they have to make. And that's before anyone investing will see a nickel of profit. I too though, suspect that number will go up wildly. Which of course will pay the initial investors a ton of money, driving the value higher as all the late-to-the-party investors jump in hoping for their piece. It should sustain a round or two of this. The good ones do.
georgemcbay 15y ago
"The current state of the industry might be irrational, but so was internet advertising in the 1990s." That doesn't say anything about their future worth though. Just because Google cracked the online advertising nut didn't make those who blazed the trail first and stumbled before them suddenly worth a ton of money. Quite the opposite, in fact.

fennecfoxen 15y ago

It's a solid business, sure, but look at the risk level of the investment and not just the business. The long-term stock market average is around 7% (and you can always invest there instead). A hot technology IPO like this is risky. What kind of a premium do you demand for taking this risk? You don't just buy a hot stock and expect its price to sit there; they have Treasury bonds for that. How much growth do they need to pull off 7%+ return on your investment? Do you think that's realistic, given the competition and the amount they're spending on acquiring customers? Or have they already priced in most of that growth, leaving very little for you? If you don't have a numerical answer for these questions, you're gambling, not investing.

driverdan 15y ago

You're assuming they find a way to acquire and retain customers while eliminating their horrible burn rate.

gyardley 15y ago
Every bit of consolidation in the market - and there's going to be a lot more consolidation - drops Groupon's customer acquisition cost, as less companies compete for the same inventory. In the meantime they've built up an incredible amount of in-house traffic-buying expertise. In their unprofitable push to get huge, Groupon bought every type of ad unit available. I wish I had a sliver of the data available to their ad buyers.
ForrestN 15y ago
http://www.businessinsider.com/groupon-q3-2011-10 http://www.businessinsider.com/groupon-q3-2011-10 They seem to be growing while gradually reducing their marketing spend, just as they said they would while everyone was hemming and hawing about their "horrible burn rate." As they've said, the spend was about growing a huge list, which would create the kind of barrier to entry that so many skeptics have been saying they desperately need. Now that they have a massive list and are getting closer to having most of the deal-seekers accounted for, they can slow down on acquiring new people for the list and focus on converting on the giant list they already have. I'm not saying they, or their IPO, will be particularly successful (I have no idea), but the reactionary criticism that has plagued them surely took a hit following their filing today.
- wnight 15y ago
  Not my criticism. For one, their list is public. Nobody else needs to generate leads - and these are already qualified as being willing to buy a similar service. Simply scrape the list of companies offering coupons. Second, they can't enforce a monopoly. Companies will offer coupons through all available players and keep track of the performance of each individually. They'll always be actively competed against by competitors who can copy any of their good ideas without being locked into any of their bad ideas. Third, deal seekers are notoriously willing to comparison shop. There's absolutely nothing keeping them at Groupon. All the coupon shoppers I know use multiple sites, it's part of the fun. Where's $11B in value?
  - pbreit 15y ago
    Weak analysis. The first point doesn't make sense. The email list is definitely not public. No, it's not a monopoly but it does have monopoly-like qualities (consumers go where deals are, businesses go where consumers are). Third, coupon shoppers do not dictate where the deals originate. Is the fastest growing business in the history of the world, one grossing $430 million/quarter (mind that this is the lower number), worth $11b? Apparently, yes. And I suspect it will both raise that number as well as pop at the opening.
    - wnight 15y ago
      > Weak analysis. The first point doesn't make sense. Not at all. You just didn't get it at first glance. The email list itself isn't public, but by its very nature, use of Groupon is. Anyone who wants to market to those customers can just email marketing@groupon's.customer.com and find a qualified and interested customer - just itching to save more money. Groupon's chunk is HUGE for what they provide. > consumers go where deals are, businesses go where consumers are It's not that anyone goes, that's so bricks and mortar it's funny. Nobody (who likes coupons) is put out by reading another page or another email. They seek this stuff out. It's what they do. And businesses don't need to "go" anywhere either. They simply file exactly the same coupon on two sites, like a person selling a couch on craigslist and kijiji. As for their gross, wake me when they've got a net that isn't an accounting error. They're approximately 13 billion years from earning that $11 billion market cap if you're speaking actual money, that they have to make. And that's before anyone investing will see a nickel of profit. I too though, suspect that number will go up wildly. Which of course will pay the initial investors a ton of money, driving the value higher as all the late-to-the-party investors jump in hoping for their piece. It should sustain a round or two of this. The good ones do.

georgemcbay 15y ago

"The current state of the industry might be irrational, but so was internet advertising in the 1990s." That doesn't say anything about their future worth though. Just because Google cracked the online advertising nut didn't make those who blazed the trail first and stumbled before them suddenly worth a ton of money. Quite the opposite, in fact.