8 ms·
Groupon falls below $20/share
- marvin 15y agoNot going to make any predictions for the future here...but whether this should be characterized as a crash or not (at the present moment a decline from 24.5 to 18 over two days, about 27%) is a semantic question and open for discussion. This is actually a very interesting question. Keeping the specifics of Groupon's business out of the equation at the moment, the pricing of growth companies is an incredibly inexact science. If most of these companies were publicly traded and liquid, you'd expect fluctuations of at least 30% a day during volatile periods. Just imagine the atmosphere in an average startup: One day you're going to conquer the world, the next day you're doomed...depending on prevailing conditions and random issues that pop up. This "atmosphere" (or expectation) carries over to the people who are attempting to determine the market value of your company. That's what the stock market is trying to: from moment to moment, determine the exact market value of each company. The market still hasn't mastered pricing stocks like these (and it probably never will, potentially extreme growth stocks like technology startups practically by definition have huge volatility), but it is getting better. Look at the skeptics who try to price startups on revenue/profits alone. Obviously a bunch of really smart people in a garage with a sound plan but no revenues are worth more than $0. Some of these groups are bound to strike it rich, so average across all of them and you'll get a positive (perhaps very large) number. This is why we see large valuations of early-stage startups. But how large should the number be? The exact value of a company is the present-value adjusted worth of all its future profits. Determining this number is what everyone who does value-based investing attempts to do. But finding this number is impossible, especially if you're investing in a very young company. I think that a lot of tech investors today are attempting to average the value across a large number of promising companies, instead of looking too much at the specifics of a single one. Due to the inherent volatility, investing in potentially extreme growth companies like Groupon and LinkedIn is a _hugely_ risky business, unless you happen to be a genius who sees something about their business that no one else does. There were probably geeks who made these kinds of observations about Google in its early history.
- antr 15y agoIt wasn't a difficult task for some funds/investors to do the maths: the cash yield of Groupon was lower than US 10y govt bond, blue chip dividends plays, etc. This implied that (i) either Groupon was a safer investment than the above, or, (ii) that Groupon was completely mispriced. By method of elimination we are left with the later one. Groupon has HUGE execution risks, facing large and tough competition, image deterioration, reducing margins, etc, while still needing to achieve espectacular growth to deliver such value. How can you price something at such a ridiculous valuation when its equity risk is way higher than those other safer investments? To price Groupon at 20usd/share was just wrong. Some of us know how much did Groupon+investors push the underwriters to make this possible, and how many sales calls the equities' desk had to do to get this thing going. No surprise this is going underwater.
- cbr 15y ago> the cash yield of Groupon was lower than US 10y govt bond, blue chip dividends plays, etc What do you mean by their "cash yield"? I thought people investing in Groupon were doing so because they thought it might continue to grow as it had been, and potentially be absolutely massive.
- deleted 15y ago[deleted]
- antr 15y agocash yield = cash flow from operating activities / fully diluted equity value
- marvin 15y agoCash yield doesn't tell the whole story for startup companies, in some cases it doesn't even factor into the equation. YouTube is a perfect example back when they had a monopoly on online video, were growing at 100% a year and were using up their cash at an incredible speed. A pure cashflow analysis would indicate that YouTube was worthless. But if YouTube stock had been offered on the market at this point, you can be certain that it would have been given a considerable positive value. This is due to the chance that the company would become profitable or make a large exit in the future. You need to also take future revenues (or a chance of future revenues) into account when making a guess at the market value of a company.
- carbocation 15y agoCost of borrow went from like 95% to 30% over the past two days so shorting recently began in earnest, it seems.
- sks 15y agoYes, without efficient shorting market will not converge to a fair price. I guess we will find out the fair valuation of groupon in the next few days.
- gyardley 15y agoHaven't checked the numbers, but if it's true, shorting began in earnest because the cost to borrow went from 95% to (a still pretty obscene) 30%. At 95%, to make money on a year-long short the stock would have to drop to pennies. At 30%, it still needs to be a massive dog, but it's doable. The sudden explosion in shorting caused by this drop in cost to borrow is probably seen as a negative signal and making some investors nervous, causing the stock to drop as they sell it off. But the cost to borrow doesn't normally drop from 95% to 30% in the absence of a lot of newly-issued shares. So why did this happen? Someone must have made a large number of shares available to borrow - so the question here is who was it and why did they do it? With the Groupon float so teeny, it's a lot easier to manipulate pricing. This could be completely straightforward and boring, but this could be an institution with advance notice of some favorable information about Groupon setting naive investors up for a classic short squeeze. (Good news comes out, some shorters panic and buy to cover their shorts, increased demand causes prices to rise, more shorters panic... iterate your way to a massive pop and a whole lot of severely-burned shorters.) This would be a good way to compensate for the inevitable drop when the lock-up period expires. TL;DR - Don't buy or short individual stocks without fully understanding what's going on, and that goes beyond the fundamentals of the business.
- narkee 15y ago>The sudden explosion in shorting caused by this drop in cost to borrow is probably seen as a negative signal and making some investors nervous, causing the stock to drop as they sell it off. I'm still trying to learn how investing and markets work, but isn't this stock manipulation? I mean, if I get a bunch of people to agree to short this stock, and others observe this happening, then the short will come through by virtue of a fall in share price because people saw that I was shorting. I'm still trying to wrap my head around how markets work, when making observations on the system necessarily changes the system, rendering your original observation invalid.
- davidhansen 15y agoAlthough GRPN is undoubtedly a money-burning scam of a company that is doomed to inevitable failure, it should be noted that the broader market is currently suffering from sovereign debt contagion in Europe and the associated liquidity scrambles. It's not only GRPN.
- RyanKearney 15y agoStill no where near as much as "the broader market" http://goo.gl/aGG0V http://goo.gl/aGG0V (Used goo.gl to link to google.com/finance comparing GRPN to Dow Jones, S&P, and NASDAQ averages since the link broke.
- suking 15y agoIt's outpacing the market drop by about 10X.
- scarface548 15y agoNot if you compare it with other tech stocks that are taking the beating too.
- madh 15y agoIs Groupon really a tech company?
- scarface548 15y agoMay be not (then why are we discussing it on HN?). Not sure what you definition of a tech company is, I was comparing it to nextflix and the likes. Also i got this from WSJ, "33% of the 4th quarter US IPOs are trading below their offer prices." . So why is GRPN being singled out when all the stocks are taking heavy beating.
- cloudwalking 15y agoGroupon is not a tech company, it's a marketing & sales company. But they're worth discussing because they started as a technology company, a scrappy startup with a fun story.
- knowsnothing613 15y agogroupon is a pseudo ponzi scheme. For any market X there exists a high variability for profitable, volume adjusted, daily deals (resource {R}), which people want. After time t, the most desired deals r in resource R are exhausted, leaving behind lesser deals (deals which make substantially less revenue-share). So as t >> T, only less desired deals remain for market X, hugely eroding profits margins, given the high fixed cost to set the deal. So the only way to maintain margins is to enter a new market Y, where r (very profitable daily deals) is in high supply. But eventually this market will be exhausted of r, and margins will again collapse. Therefore Groupon must continually enter new markets to maintain margins, which it has been doing. But there are only a finite number of markets. So eventually Groupon will collapse. This is an intrinsic problem of the daily deals market. Google may overcome it, if it can implement it's near field communication strategy, or automate the bidding process. But other daily deals site, like Living Social, with high employee counts, are bound to fail.
- jt11508 15y agoWell said. I call it Grouponzi.
- csomar 15y agoYou make a good point. But this is only true if all sellers are putting their items in Groupon. In a sane market, there will be only few sellers which want to make daily deals, and also few buyers which want to take them. I don't know the market, though, but this model can work.
- AndrewDucker 15y agoIs there a reason why deals are finite? Surely a restaurant (for instance) can run a Groupon deal once every few months?
- leak 15y agoBut I thought the main premise of Groupon is that the deal brings people in and the <fill-in-the-blank> from the business brings people back. I guess a deal could be run again to capture new customers but it's hard to imagine the need if the initial brought in customers and more importantly, brought back customers.
- suking 15y agoJust wait until the lockup expires - that's when the real crash will begin - this is just a teaser.
- moreorless 15y agoAbsolutely agree with you on this. We all pretty much predicted this on the days leading up to the IPO.
- scarface548 15y agoSo this discussion is about " I told you so". Everybody did, so ?
- alain94040 15y agoI'd like to be wrong on this one. My position was that Groupon should not have gone public in its current state. Because I'm not a Wall Street expert, but just a regular guy, I still hold the slight hope that someone knows better than me, and Groupon did go public for good reasons. If I end up being right, it's not a victory, it's further proof that our startup world is dominated by speculators who will eventually destroy it to squeeze more money. Nothing to rejoice about.
- mikeryan 15y agoMy position was that Groupon should not have gone public in its current state. I think a lot of folks felt this way, heck I think even Groupon would have liked to hold off as the time got closer. Unfortunately Groupon put itself in this position, they took a billion dollar VC round and used it, almost exclusively, to pay out early investors instead of putting some back into the business for additional runway. I think both the investors in that round and Groupon management were extremely short sighted at that point and now they reap what they've sown. They were bleeding cash right now, and I think they realize they weren't going to get very favorable terms in another raise, so they went the IPO route to raise operating capital. So yeah they had some damn good reasons to go public right now. They just could have been avoided.
- xefer 15y agoHow much to the underwriting banks stand to make out of taking this public? Does it matter to them at all if the price falls?
- winternett 15y agoHow did anyone ever expect to make money off of a coupon company?! News media provided a spin campaign to inflate Groupon's value and everyone flocked to it like white on rice... We haven't learned anything since the real estate bubble popped. The investing masses are 85% sheep.
- jinushaun 15y agoThe IPO never made any sense for an unprofitable company like Groupon. Seems like the early investors just wanted any exit they could get before the ship sank, like a ponzi scheme.
- aritraghosh007 15y agoI am not surprised by this at all. Knew it the day when the top execs were leaving the company at such a stage.
- illumen 15y agoIf you're standing too close you'll feel the wet of the bubble as it pops.
- wavephorm 15y agoDid you just make that up?
- joejohnson 15y agoHere's a dynamic graph that shows GRPN's price since IPO: https://www.google.com/finance?client=ob&q=NASDAQ:GRPN https://www.google.com/finance?client=ob&q=NASDAQ:GRPN
- jerf 15y agoApropos of some of the recent HN discussion of automated story writing, following one of the links on that page led me to http://www.tickrwatch.com/2011/11/abnormal-price-movement-detected-nasdaq.html http://www.tickrwatch.com/2011/11/abnormal-price-movement-de... , which is a "story" about abnormal price movement in the GRPN stock. It is fun because it does things like discuss the performance of the stock "in the past year" and I particularly enjoy the line "The stock may bounce back to test the 200-day moving average." I find myself wondering what code lies behind that line. Also the last line is a real gem in the field of using lots of words to ultimately say nothing concrete. Automated story writing gone bad.
- JanezStupar 15y agoI have a question. Since the coupon magic/mania started (everybody and their dog is doing a coupon site). Has there appeared a site/service that disrupts this whole model? What I mean is - the Service Providers are getting really a shitty value out of GRPN other daily deal sites. Initially GRPN needed loads of cash to get their sales people on the streets and logistics behind this were pretty massive. But today, I see this market as completely commoditized. Everybody and his dog knows of the daily deal sites. Lately I haven't really met anybody who is doing some kind of services who doesn't know of daily deal sites (and I'm from Slovenia). So here is my question - is there a sort of service that would take a one time fee/subscription for service providers and let them run their own daily deals. This way you cut out the middleman and the (expensive) sales people and this would even offer sufficient value to the service providers.
- jaxn 15y agoWhy would you need fewer sales people to sell this model than to sell Groupon? Restaurant and retail shop owners are not the easiest group to get ahold of, and they are suffering from pitch fatigue as everyone and their brother tries to sell them their daily deal service (that does have some theoretical differentiator).
- JanezStupar 15y agoFor one, when your trying to disrupt something doing more of the same everyone is doing is probably not the right way to do it. Service providers talk, they talk to their customers they talk to their competition - otherwise they provide a shitty service, which doesn't bring in much money, which gets you out of business. Imagine this conversation: Provider Alice: Hey I just got my first daily deal out the door. Hope it recuperates the steep cost in the long term. Provider Bob: Cool, where did you do it? Provider Alice: Groupon Clone X! Because... Provider Bob: Nice, I do all my deals on Disruptive service Y, which costs me only a fraction of the Groupon Clone X. Provider Alice: Motherfucker... What I'm trying to say is that this market is a race to the bottom and will probably enter the schoolbooks as an example of a dead-end business opportunity.
- orijing 15y agoI was surprised to find out that the cost to borrow shares (to short) was still so high. Doesn't that pretty much guarantee that the share price is somewhat above the "fair price"? The cost to borrow is like a tax. The price consumers pay is always above the equilibrium price, which is above the price the sellers get (30% below the buyer price). What about derivatives? Are there calls and puts on Groupon?
- mmaunder 15y agoThe insiders are 144 days into their lockup period of 180 days according to the S1 filing. Morgan Stanley and their preferred clients have made their money and are moving on. So there's not much motivation among heavyweights to keep marketing the stock and there is some paranoia about the looming lock-up expiration. http://www.sec.gov/Archives/edgar/data/1490281/000104746911005613/a2203913zs-1.htm http://www.sec.gov/Archives/edgar/data/1490281/0001047469110...
- rabidsnail 15y agoWhy do companies set the lockup period to be the same for all employees? Do they want a sudden dip in the stock price?
- mmaunder 15y agoThe lock-up period is set by the investment bank, in this case Morgan Stanley. Just to be clear, a lock-up period is not required by the SEC. But all investment banks who underwrite IPO's require them to prevent insiders dumping the stock on the first day and hurting the banks clients who the bank convinced to buy the stock. In general lockup periods are 180 days but I have seen 90 days in rare cases. I'd imagine giving preferred employees a shorter lock-up would raise hell. Having said that, if you read the S1 it sounds like Morgan Stanley and Groupon have the right to extend executive lock-up by 18 additional days without notice and employee lock-up by 34 days. So there is some differentiation between stockholders.
- kevinlu310 15y agoThis is exactly what I expected. I firmly believe Groupon's business model(daily deals) is not a sustainable model, because it's not actually creating any real value but only destroying margin.
- VigUi7vv8G2 15y agoPlus there's nothing special about what they do, anyone can come along and do the same thing (Living Social, for example)
- darksaga 15y agoI think it's interesting Groupon is giving all these large tech companies a ton of leverage with their future deals. I can just hear the Google people in their next pitch meeting to some great start-up, "You don't want to end up like Groupon do you?"
- xam 15y agoShould have let Google buy them...
- VigUi7vv8G2 15y agoThat might end up happening, for a lot less...
- signalsignal 15y agoIf you liked the pump, you'll LOVE the dump.
- gaoprea 15y agoGraphs show that the drop started on Monday morning. On Friday afternoon a piece of news appeared that LivingSocial is about to raise a $200M round to strengthen its position as a competitor for Groupon. More recent rumours say that the round may actually be much higher than that, backed by some big names, and the cash would go to the company and not to investors (http://blogs.wsj.com/venturecapital/2011/11/22/livingsocial-waiting-on-more-big-shoes-to-drop-to-close-round/ http://blogs.wsj.com/venturecapital/2011/11/22/livingsocial-...). So this may have influenced investors mood to some degree, maybe enough to make a spark so to speak, which probably was the opportunity that short sellers were expecting to start making big bets. It's just an assumption, but it could make sense. According to an earlier Reuters analysis, Groupon shares are very attractive for shorting because the company is losing money, had issues with accounting, unproven business model, and may face stiff competition (http://www.reuters.com/article/2011/11/14/us-groupon-shortsellers-idUSTRE7AD2E820111114 http://www.reuters.com/article/2011/11/14/us-groupon-shortse...).
- r00fus 15y agoMy personal experience is that LivingSocial offers are more interesting, and Groupons are often redundant. Most notably, some Groupons look like steals or desperate sales, while others are fairly banal (and useless). Meanwhile LS's offers are usually fairly constant in terms of discount, and focus on areas I find more interesting. This must have something to do with the quality of script/process that LS's sales folk are working with.
- waterside81 15y agoInsider trading motives aside, this fall in stock price coincides with a general trend I'm seeing in this daily deal market. As a merchant whose had lots of success with these sites, the offers have become better and better over the past few months. Our first Groupon ever was a 50/50 split. Our last deal was 80/20. They offered 70/30, we asked for more, we got it. Maybe that's a sign that their costs have gown down so they have more room to play with. Personally, I reached deal fatigue and unsubscribed from all of the sites. How many times can you possibly eat out / get a message / get your car detailed?
- adambard 15y agoI'm pretty glad about this. I've been shying away from even deals I want, because I know that Groupon is (was) taking 50% of the price and leaving the merchant with what was probably a loss. I might be more likely to purchase them again now.
- _Mark 15y agoIt's like there is a Groupon deal on Groupon Shares.
- umarmung 15y agoEpic Groupon poem, especially for those who do not understand why this is price action is happening! http://www.thereformedbroker.com/2011/10/30/groupoem/ http://www.thereformedbroker.com/2011/10/30/groupoem/ Here are the first three verses as a teaser: Gather round, dear investors, and hear all about The worst IPO that has ever come out It's hitting this week if the stars align right But only the foolish would look for a bite --- For Groupon is now past the peak of its glory Its promising start a well-known story Of youthful intensity, vision and zeal Of crafting the perfect consumer-led deal --- City by city, Groupon grew like a weed Positioned as marketing for the small biz in need Coupons for shoes and coupons for socks Offers for Lasik and half-off on Crocs
- nir 15y agowhat it say about google, which offered to buy groupon for $6b?
- dhbanes 15y ago...that they offered to pay $5b less than the current market cap?
- VigUi7vv8G2 15y agoHahah. What a ridiculous pump and dump.
- eurohacker 15y agoi remember jason fried was having a conversation here on HN about why early investors decided to sell some part of their shares at the time of ipo , trying to say it was a normal thing to do havent noticed any posts or comments from him in this thread though , kind of tells it ... is he still hanging in here
- Gustomaximus 15y agoHere lie the joys of short selling.