Groupon (
NASDAQ-GS:GRPN,
Stock Forum) is going through a resurgence right now. After throwing former CEO Andrew Mason overboard earlier this year when the board found him to be an insufferable toss pot, the group buying market leader decided to cut operating costs by abandoning its labour-heavy ‘daily deals’ concept and instead sitting on deals and coupons for days at a time.
Less work, less money. Of course, less fun for the end user, but hey.
The market responded well, with shares slowly rising to the point where they’ll open tomorrow beyond the 52-week high at $10.39, up from $2.60 last November.
Recent second quarter results show Groupon pegged a $7.6 million loss, with revenues up 7% in the same time, from $568.3 million to $608.7 million. That saw share prices jump 19% in after hours trading.
But wait up a second. Maybe it’s the midday Manhattans talking, but I’m seeing something here that needs another look.
First of all, that $7.6 million loss followed a $28.4 million profit last quarter out. Groupon has seen more money in the front door, but lost more out the back.
Why? Well, it’s pivoting its entire business model, taking the massive user base that was into daily deals, and turning that into one giant mailing list for other things, such as the new Groupon Reserve discount restaurant booking system.
I’ve been on the pointy end with Groupon, because when I wasn’t closing bars down last year, I owned one, and the Groupon experience isn’t something I’d want to repeat.
You do a deal with the Groupies to slash your regular price by about 50%, then they take a piece of what’s left, generally around half, so you’re suddenly inundated with business, but your margin is in the negative. It’s good PR to get a lineup out the front door, but it’s also expensive to do business that way. And Groupon takes its time getting your money to you, lest anyone ask for a refund over the coming months.
So you’ve got crazy up-front costs associated with servicing a full house, you’re making a loss on every meal sold, and the small amount of cash coming to your bank account comes a month or two down the line.
What price custom?
And frankly, I’m not interested in Groupon Reserve AT ALL. Who needs yet another app to book restaurant tables, even at a discount? I’ve got Urbanspoon, I’ve got Yelp (
NYSE:YELP,
Stock Forum), I’ve got OpenTable (
NASDAQ:OPEN,
Stock Forum), and I need another one like I need American beer.
Meanwhile, the core business that made Groupon what it is, is dying. A quick look at today’s deals for Vancouver shows exactly the same deals as I saw a week ago, and mostly the same as the week before that.
Tenpin bowling for six people? Feh. Another bloody spa discount? Please. The 304
th sushi discount of the month? Snore.
There was a time when I cranked open my Groupon app every day to see what crazy must-buy now deal was on offer for a limited time. Flying lessons? Sold!
Now I only look at it when I accidentally nudge the icon trying to actually start up Candy Crush with my stubby, deformed fingertips.
Groupon competitors aren’t much better. Dealfind finds few deals worth looking at anymore. Teambuy likewise. I still enjoy a trip to Woot.com because it does what Groupon used to (and, frankly, what it did before anyone else), but there used to be an almost psychotic obsession in people about today’s Groupon deal, and I don’t see that anymore.
So what is Groupon’s value, really? Is it one giant mailing list? If so, there’s value in that, but not $5.7 billion of value, and that’s the market cap on the company right now.
If I were to be a cynic, and not an eternal optimist, I’d look at Groupon’s most recent moves to try to start new businesses with its giant user base, while folding down old avenues, as confirmation that the whole thing is, indeed, just that mailing list, and that management is trying desperately to hit on something to leverage it properly before people start looking under the covers too hard.
To be sure, Groupon may keep going up in price for a while – at least while there are old rich white guys who have heard of it and are thus willing to park their 401Ks in it as an “I’ve diversified into tech” play. After all, who can forget Rupert Murdoch paying $480 million for MySpace a year after everyone else in the world stopped going there because SO MUCH FREAKING GLITTER TEXT..?
You can accuse me of a lot of things, but being like Rupert Murdoch is not one of them. Unless he’s sauced by 11am each day, in which case we may be brothers.
My take on Groupon is it’s almost time to short it. They’ve just bought themselves a honeymoon quarter on the back of the announcement that co-founder Eric Lefkofsky is taking over as CEO. And they’re pumping the ‘we’re doing really well in mobile’ line, which sells well to people who like hearing words they understand but who never feel compelled to reply, “of course you are, because everyone is increasing their mobile traffic because that’s how people browse now.”
So Groupon may rise a bit more over the months ahead, but any sort of failure to penetrate with Groupon Reserve, or another quarter showing a loss despite improved revenues, or any real evidence as to whether their userbase is growing or – shock horror – declining, will see fast drops in share price that will increasingly be tough to recover from.
My call on this, and I’m not an adviser, I’m just a guy sitting in his basement making margaritas in a fish tank, is Groupon has just about peaked and it’s time to cash in.
Unless you really love looking at the same tenpin bowling centre offer for two weeks straight and have a penchant for trying.. Every. Single. Yoga studio in town.
I don’t. I’d rather have dinner with Zynga executives than be a part of Groupon’s new ‘streamlined’ (read: less useful) service.
- The Drunken Optimist is an amateur stock cynic with a deep desire to be loved and no real sense of how to make that happen. He should not be believed on any point, except the one at the end that Zynga executives are bad dinner guests. Seriously, while you’re enjoying the soup, they’re sending notes to all your Facebook friends asking if you’ll “help your friend finish his dessert.” Who needs that?
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