[jonnathanson]

"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.

[larrys]

"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.

[rudasn]

> 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

[larrys]

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.

[larrys]

"How did Jeff Bezos manage to convince investors"

With people investors or not

a) consistency principle - people not wanting to be proven wrong (so they will throw good money after bad)

b) sure failure if they don't give more money so they take a chance and throw good money after bad.

c) people issuing the debt make money on the deal so they have incentive to push and not as much if a failure.

[joe_the_user]

But there was also other shtick...

"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.