Groupon Prices I.P.O. at $20 a Share | Hacker News Reader

Groupon Prices I.P.O. at $20 a Share

dealbook.nytimes.com

14 pointsdonohoe27 comments

I don't know why the "per share" price is the headline number here -- what matters is the total valuation, which is $12.65 billion.

Dunno about you, but I'm not gonna be buying at that price.

I don't argue with $12.65, it's the "billion" added at the end that makes me scratch my head.

Honestly, $12.65 might be too much too - the company has built up some pretty serious liabilities the way the deal payouts are structured.

Analysts ranged the price at 16-18 dollars. They were highlighting the estimated premium of the IPO.

Putting aside the questionable nature of Groupon's IPO discussed ad nauseum here, this trick of only selling a very small part of the company in the IPO to keep price high by restricting supply seems, for lack of a better word, strange. So, I buy some stock at a price inflated by the lack of supply as the company puts 5% of itself out there. For the supply-restricted price to make sense, though, I have to believe that either the supply is never going to be expanded by the company putting more pieces of itself out there on the market, or that I'll get mine in dividends before that happens. (Or that I can unload it on another sucker, but for the sake of analysis I'm trying to discuss the real value in terms of dividends and percentage of company owned rather than the gambling side.)

Well, obviously I'm not seeing any dividends any time soon for something like Groupon. What happens when more of the stock trickles on to the market? (How much of the company will become available as employee stock options?) Or if Groupon puts another 5% out there? What happens when the supply expands?

It seems like this is the sort of trick that's only going to work for a little while.

I'm pretty sure when a company does additional "public offerings" they typically issue new shares and dilute their existing shares rather than sell them. It's just easier, and more smoke-and-mirrors, just the way Wall Street likes it.

That argument is sort of like a chess strategy that starts with "If I get four moves in a row, I can checkmate my opponent."

Nobody is denying the basic facts you've cited, so it'll be very hard for you to find someone whose ignorance of those facts you can use to your advantage. Groupon won't be as liquid as, e.g., AMZN. But buyers and sellers both know that.

And selling pressure is intrinsically short-term; Groupon's underlying value is completely independent of the number and motivation of selling shareholders. In a Bayesian sense, you could respond to insider selling--except that insiders are almost always selling, and the more successful the company is, the more they ought to sell. The biggest insider sellers are, by necessity, the founders of the biggest and most successful companies.

I would think something more like "If my opponent is going to get four moves in a row, why should I play?" is more what I was going for. I'm not trying to screw other people over, I'm trying to figure out why I'd play this game at all.

I'm as big a believer as you're going to find in rational markets, but that entails also knowing that in point of fact they can often be quite irrational by exploiting various human irrationalities, such as using past experience when we really shouldn't. Big fund managers aren't even remotely immune to this. This strategy of selling such a small portion of the company on the market feels like a way of exploiting the fact that "everybody knows" these big tech stocks "always" explode and exploiting the demand that is higher than it should be, while in fact selling hardly anything of value at all. Arbitraging the belief that tech stocks can't help but pull a Google, basically.

Manipulation Manipulation Manipulation.

Manipulation of the worth of the services on the coupons. Manipulation of the SEC IPO filings. Manipulation of the IPO timing. Picking a mini bull run to IPO. Manipulation of the financial statements. Sacrificing user acquisition to balance the books.

A company with a sound business doesn't require this much manipulation to operate.

IPO or not, we still won't be talking about them in 5 years.

Of all the naysayers, the Hacker News community seemed to be one of the most consistent. I'm curious why that is? Is it because Groupon doesn't look ostensibly too technical? Is it a general disdain for commercial success? Is it for perceived arrogance? Is it a lack of business acumen?

Wow, now there's a loaded question. Why don't you just ask us whether we're gonna stop beating our wives?

The reasons to be skeptical of Groupon are well documented. Not that it's a bad business, by any means, it's just that it's an industry with low barriers to entry and many competitors, and Groupon's early success is unsustainable since it was built on persuading businesses to offer ridiculously good deals which are likely to lose them money; businesses are wising up to this, deals are getting worse, people are getting less interested, and in general the whole social-coupon industry seems to be settling into a new equilibrium in which a $10^10 valuation for Groupon seems excessive.

I used to think it was an industry with low barriers to entry, as did lots of people who have lost lots of money on Groupon clones. I'm not sure why, but it turns out to be a really tough business for all but a few companies.

Groupon's business is basically all sales and marketing. The v1 tech behind the deal-a-day offerings is trivial. (leaving aside recommendations and such)

You need to be very good at signing up businesses and getting good terms for your company to succeed. In addition, you need to figure out how to get a stable base of customers of your site.

Basically, Groupon clones have very low technical barriers to entry, but if you don't have a really good sales and marketing staff you're in trouble.

It has natural monopoly-like characteristics: buyers go where the best deals are, sellers go where the most buyers are.

The founders and early investors have all cashed out, they invent accounting metrics. When you look at the actions of their management team and combine it with weird accounting metrics, it would be more aptly named Grouponzi.

It isn't a lack of business accumen, divesting yourself of a business at the height of it's market cap is the right thing to do. The problem is that in order to do sell at the highest price you need to convince someone else that the business will be worth even more in the future. For being able to do that he is a brilliant business man.

If pouring cash into this business would make it profitable then why did 90% of their Series G go to cashing people out? It seems to me that if Andrew Mason believed what he says then he'd go all in and take a modest profit to secure himself for the rest of his life. Instead he sees what everyone else sees which is a business about to tank.

So when is the right time for an executive to take money off the table? Ever? AirBnB founders took money off the table. Is that a bad sign for it? Founder liquidity is not rare.

When it suits them, it doesn't matter to me, I could care less if an executive can convince someone to take their stock off of them.

Taking 'like a billion dollars' in liquidity when your company is bleeding cash does not engender me to believing that the management team sees long term viability in the company.

Groupon is built to flip, if you're a trader a stock like groupon is perfect, there will be lots of volatility to trade on. I'm not a trader, I believe in creating long term value. Groupon might be the kind of thing where a guy like Buffett could take advantage of the cash flows it generates to build a bigger better Berkshire.

http://www.youtube.com/watch?v=5ydqjqZ_3oc

This is fundamentally the best explanation of the groupon business model.

Nope; it's mostly their ethical void. The business boils down to temporarily delaying payments to merchants, in the meantime reporting those payments as revenue. This inflates the value of the company and misleads investors into believing their business model is more viable than it actually is.

On the flipside, their customers (merchants) are reporting that they do not see the conversion rates that Groupon advertises to lure them into a deal. In response, they try things like raise their prices prior to honoring a deal, which further dilutes the value of Groupon's product.

Neither point makes much sense. No matter when payouts are made, Groupon keeps around 40% (an extraordinarily lucrative business). I'm not exactly sure what you're getting at regarding conversion rates. From a merchant perspective Groupon offers the unheard of conversion rate of 100%. Every single prospect generates a sale and the vast majority walk through the door.

I think it has to do with a perception that Groupon does not create as much of the value they take credit for.

In Chicago, there's an additional resentment that the business community considers Groupon the first successful web startup in the city to ever go public.

The headline only means anything because of the convention restricting IPO share prices to a fairly narrow range. The more relevant number appears in the fourth paragraph:

The stock sale values the company at $12.65 billion.

I predict that much like Demand Media [DMD], Groupon [GRPN] will be at less than half its IPO price within one year.

There's at leat one major difference in my mind: I and many people I know use and like Groupon (both consumers and merchants). No one I know, including me, use or like Demand Media.

How long until they have to start selling it via their site at a discount?

The comments are much more interesting than the news. 100% negative public sentiment on the most inflated IPO of the year. That can't be a good sign.

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