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Comment by Aaronontheweb | Hacker News Reader

Huh, but I thought Groupon had finally had the ship turned in the right direction and was profitable?

http://www.businessinsider.com/wait-wasnt-everyone-just-sayi...

I don't understand much about investment markets, but shouldn't that raise investor confidence or is there something else going on?

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I imagine Groupon is like Amazon - providing an easily copied service but having some early mover advantages. And like Amazon instead of taking profits they are investing in growth.

Like let's say Amazon with their current trends sees $600 million profit next quarter. Instead of taking that $1 billion profit they plow it into advertising and loss leading promotions until the projected profit is down to $100-150 million. This gives them bigger revenue growth, more users, etc. while still turning a modest profit which let's the execs hit their bonuses.

And just like Amazon the short term profits above all else mentality of investors doesn't get excited about this.

As someone pointed out elsewhere on HN today, it's one thing to have a profitable core business, and reinvest large portions of it in growth (resulting in short-term losses.) Groupon's problem is that its core business may not be profitable at all, because it's costing them more to secure new business than they make off those customers.

Where have you seen that it is costing them more to secure new business than they make off their customers? I'm fairly confident that isn't true.

There was lots of discussion about this last year, particularly that as they exist in a market longer, they have to spend more to find new customers (because they start exhausting the pool of businesses willing to "test" their service.)

http://betabeat.com/2011/06/groupons-business-is-decaying-in...

Is it true? I don't know (hence my use of the word "may"), but it's certainly a concern for Groupon and other local business services that have to spend a lot of sales people to target relatively small business customers.

Groupon's core problem is that the lifetime values of their stakeholders, both the merchants and the customers, decline quickly. If you compare the customer acquisition cost to the current lifetime value of a customer, it seems profitable since the company is growing so fast that most of its customers are new to Groupon and are still high-value. However, research on the earliest cohorts of users shows that the older the customer is, the less profitable they are, indicating that once the growth is tapped out the customer base will rapidly decline in value.

There's lots of analysis out there that use the numbers directly from the S-1 to highlight this fact. The crux of the problem is that Groupon needs to find a SUSTAINABLE way to deliver value to businesses and individuals and this doesn't seem to be the case right now.

I think one of Groupon's big mistakes is how they price everything. Based on what I've read they require businesses to cut the price of whatever they're selling by 50%, and then Groupon takes 50% of the purchase price. That's an absurd price cut for the businesses for what's really an email campaign ... something a business could technically do for free or cheap if they can convince their existing customers to sign up for deals, and leverage social channels to grow beyond existing customers. Obviously, part of what Groupon pitches is that they'll bring you new customers with the goal of converting them to recurring customers, but I think the pricing is all wrong.

Retailers should be allowed to cut their product by a less severe percentage, and Groupon's cut should be a fraction of what they take today. Maybe 10-15%.

"That's an absurd price cut"

Groupon is advertising and needs to be evaluated as advertising not as a price cut.

"for the businesses for what's really an email campaign ... something a business could technically do for free or cheap"

No that's not a real option that is either free or cheap anymore then you can replace traditional advertising by having the owner's family pass out fliers and/or stand around with a sandwich board.

Maybe they righted the ship and now everyone sees their sustainable profit is below what they thought it would be.

The post-IPO lockup period ended today. Insiders (private equity, founders) typically have to wait 6 months after an IPO before they can sell their shares.

In GRPN's case, you can see on http://finance.yahoo.com/q/mh?s=GRPN that 45% of their shares are held by insiders. Their sales are probably causing a temporary supply/demand imbalance.

EDIT: sorry, that was Friday (http://dealbook.nytimes.com/2012/06/01/as-lock-up-expires-gr...) but the effect of lockup expiration lasts longer than one day.

You would think just about all insiders would want to cash out. I just can't see how Groupon right now would at all be the best place to have your money tied up.

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