I never really understood Groupon's super high valuation. I think they grew too fast, and possibly needed to cut corners to sustain their growth. Can anyone explain what the appeal has been for investors?
"Can anyone explain what the appeal has been for investors?"
The usual shtick about how growth trumps all other considerations. "It's the fastest growing company ever!" "Who cares if COGS is absurdly high / users aren't buying / revenues have been overstated / etc? Fundamentals don't apply when they're growing this quickly!" "This is a winner-take-all market, like with Amazon in the 90s!"
I remember reading endless defenses of Groupon's business model on SeekingAlpha in the months leading up to the IPO filing. People would trot out all sorts of highly sophisticated models and theories to demonstrate how Groupon was pretty much exempt from the laws of thermodynamics. I'm too young to remember if the same pitch was used for the Dotcoms of the '90s bubble, but the logic sounds eerily familiar.
"This is a winner-take-all market, like with Amazon in the 90s!"
Amazon is often pointed to as a company that was doubted much and then succeeded. What isn't talked about as much, in addition to the fact that there were many more companies that went bust than hit, is the fact that Amazon lost 3 billion before it became profitable. (Source: financials on Amazon investor site). The fact is Amazon should have failed and the critics were right more than they were wrong.
"I'm too young to remember if the same pitch was used for the Dotcoms of the '90s bubble"
Same idea. Making people think they are stupid if they don't "get it". I know otherwise smart people who lost $100,000 on dot com stocks that they had no business in back then.
> Amazon lost 3 billion before it became profitable
Where exactly did they find 3 billion to lose? How did Jeff Bezos manage to convince investors to give up so much cash? I'm really surprised about this
Taking only 1 year as an example, 2001 Amazon had $444 million of accounts payable, $305 million of current liabilities (some other things...) and 2.1 billion of long term debt.
So, in 2001 the total current liabilities and ltd was over 3 billion dollars.
So they borrowed - they issued bonds as well as used other types financing. The interest payments for that year are actually pretty low in relation to the debt, interest expense for 2001 was only about 139 million.
"They've solved a problem that no one else was able to solve ... how to go that last mile to the merchant"
And
"They've assembled a team like no one else [implication they can pivot if necessary]"
And
"Anything done by [supposed-superstar-manager] is worth a lot"
And naturally, all this was wrong-headed. The retail sector as a generic is pushed to the boards in this economy. The idea that you can squeeze excess capacity for profits is simply false given that no industry has ever attained economies of scale without building for it from the ground-up. Blood? Stone? You cannot squeeze...
TL;DR; You could say Groupon was built on looking at plans that worked for sky diving businesses and pretending they'd apply to restaurants.
Me neither. They are in a commodity market with a low barrier to entry. They had dozens of other competitors, but had no secret sauce nor was Groupon any better than them. Even a basic Twitter search for deals is better than Groupon--nevermind paper coupons. The CEO should've taken the Google offer and run with the money. I don't understand why investors were gaga over it.
The usual shtick about how growth trumps all other considerations. "It's the fastest growing company ever!" "Who cares if COGS is absurdly high / users aren't buying / revenues have been overstated / etc? Fundamentals don't apply when they're growing this quickly!" "This is a winner-take-all market, like with Amazon in the 90s!"
I remember reading endless defenses of Groupon's business model on SeekingAlpha in the months leading up to the IPO filing. People would trot out all sorts of highly sophisticated models and theories to demonstrate how Groupon was pretty much exempt from the laws of thermodynamics. I'm too young to remember if the same pitch was used for the Dotcoms of the '90s bubble, but the logic sounds eerily familiar.