It was the perfect fad - daily deals, network effects, largest company in space! Only problem? It by definition is a price-competitive business, offering little if any long term benefits to customer (i.e. merchants who sold deals on Groupon)
Remember This article? Over a year ago, insiders were selling hundreds of millions of dollars worth of shares even pre-ipo!
The rest is history:
GRPN has admitted that the daily-deals "business" is not that good and has resorted to accounting tactics/schemes to keep cash flow up (while actual net income, including contractually obligated payments is negative and will balloon on the back-end). From that article: "a significant amount of its cash flow is the result of Groupon collecting coupon revenue up front, then paying it back to the merchant over a period of weeks or months". In other words, current cash hides just poorly the business is doing, and how reliant it is on every great numbers of new customers (a pseudo pyramid-scheme).
But perhaps most importantly - Andrew Mason, the CEO, wants GRPN to be the operating system of commerce, to become the middle man in commerce.
Let me get this straight - Mason has decided the reinvent the business less than a year after ipo and essentially go back to the drawing board for new business. Its choice(s)? Hyper competitive fields such as mobile payments (Ebay, Square), booking management system (OpenTable), and reaching local businesses (roughly YELP).
So prospective investors, you get to buy a start up all over again! Only costs about $3B!
I believe the cash burn and the sectors-wide slowdown of hot commerce/tech ipos will mean $1.5 per share is possible
Careful investing to all,
-Stanley
*Disclosure, am short GRPN.
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