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Groupon Not Doing So Well On Wall Street
bdking writes "Shares of the daily-deals site were up Tuesday, but Groupon's ride on Wall Street since going public in early November has been almost all downhill. And there's no evident catalyst to reverse the slide."
From the looks of it, Groupon is blowing all of its money attempting to expand in the face of ever-growing competition in a market with trivial start-up costs.
How does a company with a lack of value go on the stock market, IPO and expect there value to go up? This is the big world of money, show me the money!
Yes, and its very disrupting to the current clientele. Our yoga studio offered a groupon and what we got was a month or two overcrowded classes, and a bunch of angry regular customers who want to know why they are paying so much more for their classes. She ended up having to extend the offer to everyone for a month to quiet them down.
Plus the GroupOn people were almost universally idiots.
Share price is a function of revenues. Cash flow and profitability determine stock price.
Companies that do little to generate cash and profits don't deserve a high share price. Did the dot com boom teach us nothing?
Stock price is a function of supply and demand by short term speculators. To some extent its centrally controlled; look at the "constant" demand by 401K retirement purchases for the past few decades, and when those purchases turn into sales due to retirement/death/perma-un(der)employment, look out below... There is some impact by corruption, mostly insider trading, but also industry wide a lot of front running.
Stock value is a mathematical function of net present value of future dividend income, and the worth of the corporate balance sheet divided by the number of shares with corrections for market friction both up and down. Both are obviously centrally controlled; an example is federal interest rates in comparative NPV calcs and federal control of inflation vs the ROI of historical corporate investments; but indirectly there are the effects of regulation purchased by the corporation from lawmakers, and effects from taxation, for example a dollar of dividend income is worth less than a dollar on the balance sheet to a 401K investor due to cap gains vs dividend income tax laws. Management has a slight impact on stock value, but the prevalence in group think and herd behavior means they all pretty much do the same thing, so they're not too important. Corruption has a huge impact on value, most corporate accounting numbers are on the edge of legality, the huge impact of government control of businesses is controlled by comparatively small bribes (both legal and illegal) to govt officials. Corruption is a much bigger problem for stock values than stock prices.
On average, if you buy at a price lower than the value, you come out ahead, and vice versa, just like price vs value of real estate or beanie babies or ham radio gear or anything else. However there is an old saying about the market having the ability to be insane longer than you have the ability to remain solvent, so look out... Also both price and value are almost completely centrally controlled with little impact from "market forces" so they are to some extent a proxy for how much the individual investor / speculator trusts corporate owned politicians.
Not a wiki cut and paste, all my own words except my attempt at recalling the "ability to remain solvent" quote.
"Science flies us to the moon. Religion flies us into buildings." - Victor Stenger
How does groupon work?
Company A has a product that normally sells for X. They get a deal with groupon to sell it for Y, such that Y < X.
Groupon take some cut, so the retailer is getting A, such that A<Y<X.
So I call the retailer and go 'hey, let me buy your thing at price B', such that: A<B<Y<X.
The retailer gets more than they would from groupon. I pay less than I would if I'd gone through groupon. Groupon get zilch. I win, the retailer wins. My only issue is how I pitch the price B. But for me, anything below Y is a win for both of us, I just don't know what A is (if I go below that, the retailer is better off with groupon).
Or I've missed something, apart from the fact that if groupon didnt exist I wouldn't have heard about the retailer in the first place...
They have admitted in their filings that they are using the float from both the income from new sales, as well as the hold-backs on the money they owe merchants (they can take 3 to 4 months to pay out) to support their business.
They don't have any profits once they pay their sales reps and the merchants they owe money to - they've also failed to put aside the money from unused groupons - most consumers don't know that in many states they can claim a refund from groupon up to 5 years later for unused tickets.
First attorney-general who goes after them sinks them.
It isn't greed alone. It's stupidity in its many forms- and the Dunning–Kruger effect looms larger than life in each VC firm I've ever met (perhaps a dozen? Not a lot, but an unfortunate sampling at best).
VC's seem to attract people who are genuinely affable communicators but poor judges of what they are taking their shareholders into.They are predisposed to be gullible by a variety of factors that include greed, overconfidence, a desire to use a good story as a means to make themselves appear competent, and pressure to find new ventures. The entire industry is rife with personality-driven bubbles. Frankly, the irrationally manic atmosphere of the entire system creeps me out. They seem to come off like dodgy vacuum salesman, particularly in the wakes of their inevitable collapses.
These things tend to drive a firm to go after the 'best' stories, not actual sustainable business ventures. The two do not often intersect, but this goes against the mantra of the VC business.
If there were a way for an individual investor to short these sorts of things, I'd love to hear about them. There are several other candidates out there I'd love to invest in this way. I'm obviously pretty clueless abut how to do this, though.
Anyone have an idea if this is possible?