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Groupon Not Doing So Well On Wall Street

Unknown Lamer posted more than 2 years ago | from the bad-business-idea-is-bad dept.

Advertising 140

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.

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140 comments

Show me the money (2, Interesting)

Anonymous Coward | more than 2 years ago | (#38213412)

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!

Re:Show me the money (5, Insightful)

bluefoxlucid (723572) | more than 2 years ago | (#38213448)

It's simple: They IPO'd. They don't give a shit about their stock price; they have your money. An IPO is always a bad buy-in because they'll do everything in the world to inflate their stock price. The IPO brings cash to the business; then us traders trade little sheets of paper back and forth for some imaginary value, hoping that we can figure out when the value is going to stop going up and then distribute our papers to other idiots, then buy them back when the value is going to stop going down. In this way we get other paper (called money) in greater quantities than the little papers (called stock) that we're trading around.

Facebook will do this too. They'll IPO, you'll hear singing praises about how this is THE IPO you want to get on--it's friggin' Facebook. You'll see their stock price go up for a day or two after. Then down it comes. LNKD did the same thing.

Re:Show me the money (5, Interesting)

aldousd666 (640240) | more than 2 years ago | (#38213562)

they only floated 5% of the company shares. principals all had a nice ejection seat.  the stock price goes up on the first day because everyone wanted to borrow it so they could short it.  the IPO underwriters make a fee on the offering, the principals cash out, some early bird flippers turn a profit on people looking to supply the borrow or cover their shorts, and they exit too. who's left? the market bagholders who get excited about 'new technology booms' from watching CNBC over their orange juice. it's basically a ponzi scheme.  I hope they drown in it.

Re:Show me the money (5, Informative)

vlm (69642) | more than 2 years ago | (#38213932)

it's basically a ponzi scheme.

Nope, not even close.

The situation is analogous to "begs the question". "begs the question" has a technical very specific philosophical meaning but in modern prose it almost exclusively means "Insert wordy semi-scholastic filler phrase here". Also see "price point" instead of "price", etc etc. Hell, see "etc" too.

In modern American speech, "ponzi scheme" is a semi-scholastic phrase meaning "it sucks" or "I don't like it" or "they're crooks". It does have a real technical meaning and describes a criminal activity which has nothing at all to do with your explanation in any form. Ironically (irony is another often re-imagined word) their sales/finance strategy is vaguely ponzi like, in the sense that all corporate sales/finance strategies are when they reinvest any profits in the company, but not really, not in a criminal sense anyway, and certainly not in the market explanation you provided.

I can't think of a way to run a ponzi in/over/with a market like you describe... maybe a boiler room operation cooperating with false price quotes could pull it off?

Note that I'm not defending them; they appear based on lots of journalist stories to have published fraudulent financial data. That would make them frauds, not ponzi operators. I'm just saying it does no one on either side, any good, to describe a bank robber as a kidnapper, or describe a horse thief as a murderer.

Re:Show me the money (4, Informative)

aldousd666 (640240) | more than 2 years ago | (#38213958)

no. it means you pay out the early suckers with new suckers money. that is the definition of a ponzi scheme. when you run out of new suckers the whole thing breaks down.

Re:Show me the money (1)

vlm (69642) | more than 2 years ago | (#38214172)

no. it means you pay out the early suckers with new suckers money. that is the definition of a ponzi scheme. when you run out of new suckers the whole thing breaks down.

Yeah, but that's exactly what they're not doing. The way you run a ponzi in an IPO situation is you IPO, take the money, pay it out as dividends, stock price goes up, sell more stock at high price, pay the money out as more dividends, repeat repeat repeat until the last step is instead of paying out the stock sale as dividends, you run to Argentina or whatever is trendy now a days. Think Mr Madoff except his escape didn't quite work out, or obviously, historically, Mr Ponzi himself. That's not even remotely what is happening at groupon.

You can run the cashflow p/l and balance sheet of a company into the ground perfectly effectively without running a ponzi. Its not like a ponzi scheme is the only way to destroy a company, or to commit fraud.

Now would you agree with a whole bunch of published journalists, and myself, that in my/our opinion it appears they are either committing financial fraud or at very best are just barely on the legal side of being prosecuted? That I think we could agree on?

Re:Show me the money (4, Interesting)

aldousd666 (640240) | more than 2 years ago | (#38214300)

yes, I do agree on that last point.  I still see similarities of the IPO with madoff and ponzi's deal though since you as the original seller know there is no value to the company, really because the business model is dead in the water (For lots of reasons.)  So the only way it is any good to anyone on the stock market is if the price is above zero, and for each guy selling it, it gets a little closer to zero every day, without possibility of going up because the model doesn't support a higher price nor dividends.  There is nothing on the horizon for them that can pump up the price short of people (new suckers) thinking they'll get to flip it to someone else.  This is very much like a ponzi scheme. perhaps the fault doesn't lie entirely in the company, but also with everyone else who made an IPO on a sham operation possible.

Re:Show me the money (2)

vlm (69642) | more than 2 years ago | (#38214542)

There is nothing on the horizon for them that can pump up the price short of people (new suckers) thinking they'll get to flip it to someone else. This is very much like a ponzi scheme.

No, it is very much like an improperly identified, yet accurate, well summarized, well written, and fairly elegant one line description of the endgame of "greater fool theory".

The wikipedia article isn't that great, but:

http://en.wikipedia.org/wiki/Greater_fool_theory [wikipedia.org]

If you have an editor account on wiki, you could probably cut and paste your one liner into that article as a description of conditions at the end stages of a GFT operation.

GFT is the most profitable investment strategy during a bubble. During the second great depression? Not so good. I guess we'll all see how it turns out.

Re:Show me the money (5, Funny)

Anonymous Coward | more than 2 years ago | (#38214556)

I stopped reading at your last comment because the fixed width font hurts my eyes.

You're wrong - Groupon is a Ponzi scheme (4, Interesting)

tomhudson (43916) | more than 2 years ago | (#38214164)

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.

Re:You're wrong - Groupon is a Ponzi scheme (2)

vlm (69642) | more than 2 years ago | (#38214390)

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.

Dude that is every manufacturing plant that has operated in the last century, or at least post-first-great-depression, not a scam at all. See "net 30 account" etc. Also see restaurants, retail stores, some warehouse operations, darn near any business involving "move this here, in exchange for this money, eventually".

Now if you lie about it, and put that debt down as a cash asset on the balance sheet, or if you play games to avoid placing it on the cashflow statement, that is financial fraud.
If you violate your contractual "net 30" account terms, there are all kinds of civil law violations.
There are also ways to get in trouble with the IRS if you are obfuscating who's paying who how much interest (or imputed income from not paying whats actually owed, etc)

They don't have any profits once they pay their sales reps and the merchants they owe money to

Being stupid or a failure isn't a crime, or frankly even all that unusual.

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.

"manufacturers coupons" have been tired old case law since coupons became "cool" in the great depression. I'm not going to pretend to be an expert on coupon law, and I'm guessing you aren't either. I can assure you that at least 20 years ago in the grocery business we did not keep 5 years of cash reserves equal in value to every coupon we printed for the previous 5 years. If you think about it, at a couple percent off for a fraction of the store per week, that coupon fund would end up being some multiple of the balance sheet of the entire corporation and most of the plants feeding us.

I do agree fully that they're running themselves into the ground and offer little value other than (quickly disappearing) hype. I disagree that a standard commercial "net 30" account, or offering manufacturers coupons is somehow a scandal or moral crisis or a corporate secret or a legal problem, or even something new or unusual.

Re:You're wrong - Groupon is a Ponzi scheme (3, Interesting)

tomhudson (43916) | more than 2 years ago | (#38214736)

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.

Dude that is every manufacturing plant that has operated in the last century, or at least post-first-great-depression, not a scam at all. See "net 30 account" etc. Also see restaurants, retail stores, some warehouse operations, darn near any business involving "move this here, in exchange for this money, eventually".

1. What's with the "Dude" bit?

2. The difference is that most businesses, after paying their suppliers, are expected to show a profit. Groupon is operating at a net loss. A very LARGE net loss. This is because their sales costs are so high.

Now if you lie about it, and put that debt down as a cash asset on the balance sheet, or if you play games to avoid placing it on the cashflow statement, that is financial fraud.

They did lie. They got caught. They had to restate their "earnings."

If you violate your contractual "net 30" account terms, there are all kinds of civil law violations.

There are also ways to get in trouble with the IRS if you are obfuscating who's paying who how much interest (or imputed income from not paying whats actually owed, etc)

They don't care - they're losing money hand over fist.

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.

"manufacturers coupons" have been tired old case law since coupons became "cool" in the great depression. I'm not going to pretend to be an expert on coupon law, and I'm guessing you aren't either. I can assure you that at least 20 years ago in the grocery business we did not keep 5 years of cash reserves equal in value to every coupon we printed for the previous 5 years. If you think about it, at a couple percent off for a fraction of the store per week, that coupon fund would end up being some multiple of the balance sheet of the entire corporation and most of the plants feeding us.

These are NOT "manufacturers coupons" - these are promises of the future sale of a good for money already received. As such, the consumer has, in many states, a year to demand a refund, and in some states up to 5 years.

This is settled consumer law.

I do agree fully that they're running themselves into the ground and offer little value other than (quickly disappearing) hype. I disagree that a standard commercial "net 30" account, or offering manufacturers coupons is somehow a scandal or moral crisis or a corporate secret or a legal problem, or even something new or unusual.

They are not doing 30 days net. They owe more than their current receivables. They are insolvent. The only thing that keeps them going is (1) the cash infusion from the IPO - otherwise they would have shut their doors by the end of the year, and (2) the money from current sales, which is used to pay off past sales - same as a Ponzi scheme.

Re:You're wrong - Groupon is a Ponzi scheme (2, Funny)

hxnwix (652290) | more than 2 years ago | (#38215962)

same as a Ponzi scheme

Dude, please. Not this garbage again.

Re:You're wrong - Groupon is a Ponzi scheme (5, Insightful)

lucm (889690) | more than 2 years ago | (#38216024)

> The only thing that keeps them going is (1) the cash infusion from the IPO - otherwise they would have shut their doors by the end of the year, and (2) the money from current sales, which is used to pay off past sales - same as a Ponzi scheme.

The Groupon business model is lousy, their business have no intrinsic value, but all of this is clear to whoever wants to get a piece of the action. Buying Groupon stock might not be a sound investment, the IPO might be a mere financial tactic on their part to bring in money and cash out, but that does not make it a criminal activity.

Saying that the Groupon thing is a Ponzi scheme is like spitting in the face of Madoff's victims. Saying that teabaggers are fascists is making fun of the people who were tortured and killed in Mussolini's jails. Saying that my 55 years old neighbor who married a 19 year-old is a pedophile is disrespectful of those who had their 5 year-old abused by the bus driver. Saying that OWS is a revolution is an insult to the people who died to kick out dictators.

Words are important.

Re:You're wrong - Groupon is a Ponzi scheme (1)

bluefoxlucid (723572) | more than 2 years ago | (#38216160)

Saying that the Groupon thing is a Ponzi scheme is like spitting in the face of Madoff's victims. Saying that teabaggers are fascists is making fun of the people who were tortured and killed in Mussolini's jails. Saying that my 55 years old neighbor who married a 19 year-old is a pedophile is disrespectful of those who had their 5 year-old abused by the bus driver. Saying that OWS is a revolution is an insult to the people who died to kick out dictators.

If I was a chick I would want you so bad right now.

Re:You're wrong - Groupon is a Ponzi scheme (1)

DrXym (126579) | more than 2 years ago | (#38216106)

Groupon's problem is they shit so hard on prospective customers with the hard sell that their tactics are more akin to scorched earth than a sustainable business model. One burned business tells all the businesses down the street and before you know it, the regional deals are reduced to fish pedicures and similar service industry dross. If Groupon wasn't fucking businesses over by expecting them to provide service for 25% of the normal revenue and provided the tools for businesses to stay in control of a promotion (e.g. by limiting the rate of sales or putting a hard cutoff on total sold) they might just enjoy word of mouth that would result in repeat business coming their way.

A more reasonable coupon service wouldn't even bother with the hard sell, at least not for small fry customers. They should let businesses come to them through good word of mouth and a decent self service interface where a business could create their own campaigns with their own limits and run them for a more reasonable % of the cut. What exactly is the problem here?

So Groupon IMO is doomed. Sooner or later someone is going to produce something far more palatable for businesses.

Re:Show me the money (1)

quarterbuck (1268694) | more than 2 years ago | (#38213940)

Insiders are prevented from selling their stock during the lock-up period, which is usually six months after an IPO.
It is May 2nd for Groupon, so insiders are going down with it http://money.cnn.com/2011/11/22/technology/groupon_stock/index.htm [cnn.com]

Re:Show me the money (1)

MarkvW (1037596) | more than 2 years ago | (#38215026)

Insiders are prevented from selling their stock during the lock-up period, which is usually six months after an IPO.
It is May 2nd for Groupon, so insiders are going down with it.

The real insiders have already milked the cash infusions that the initial investors have pumped into the company. They're good to go.

The initial investors (the ones who put up the VC) are perhaps the ones who are nervous right now.

Re:Show me the money (1)

DrXym (126579) | more than 2 years ago | (#38213948)

More accurately they floated 5% of their debt (since their company is in the red), used the IPO to give themselves a cash injection, perhaps hoping that the stock would rise so they could sell more stock. If the stock goes down the shitter though then the chances of raising money through future offerings is reduced and ultimately fruitless. I think Groupon have one shot to turn this around before Christmas and then they're screwed.

Re:Show me the money (0)

Anonymous Coward | more than 2 years ago | (#38214762)

FYI You may think courier new makes you hip and cool but in reality it just makes every single one of your posts annoying as fuck to read so we just skip over them.

Re:Show me the money (3, Informative)

icebraining (1313345) | more than 2 years ago | (#38215100)

Slashdot just uses whatever monospace font you have configured - it's not his fault you have Courier New.

In Firefox you can configure that in the Content tab in the preferences. I use Inconsolata and I find his post very readable.

Re:Show me the money (-1)

Anonymous Coward | more than 2 years ago | (#38215344)

It's Slashdot's fault for allowing users to change the font in the first place. The only things that should be allowed in comments are blockquote, strong, em and href. They remove inline images, they can remove fonts, code, etc.

Re:Show me the money (0, Flamebait)

Anonymous Coward | more than 2 years ago | (#38213576)

Yea, I'd recommend you stop referring to yourself as a 'trader', as if you make the statement "An IPO is always a bad buy-in" you are not a trader in any sense of the word. Yes, Groupon was a shitty IPO and so was Linkedin, and Facebook likely will be as well, but that hardly means all IPOs are a bad bet. As a general rule, IPOs of companies that already have high public visibility are dangerous, as the day traders will overvalue the IPO based solely on name brand recognition and a desire to get in on what they incorrectly perceive as the "ground floor". But IPOs of less heralded companies that actually have a good business plan is how very smart people make heaping piles of money. And the high profile companies can pay off pretty well at times, I'm gonna say the people who bought Google at $85 on their IPO probably don't consider their investment a "bad buy in".

Re:Show me the money (2)

bluefoxlucid (723572) | more than 2 years ago | (#38213812)

Wow google took off fast. It only lost for about half a month or so, $108 to $100, then went through the roof. I mean that's still bigger than the standard 6% stop loss, but yeah. (Google shows Google's first day as August 20 2004 at $108, and September 3 as the bottom; I don't see the original $85). Yahoo says Aug 19 2004 at $100 ... so yeah, good buy in.

how did this happen? Did Google not overhype its IPO, or did Google take a large holding in Google stock? Or is this a double-dip tactic, where the company pays its executives in stock and thus the increase in stock price is a good thing more important than, say, IPOing way more stock at the same price (i.e. as if the stock split and then recovered its per-share price)?

Re:Show me the money (1)

Anonymous Coward | more than 2 years ago | (#38213990)

Google raise in price over their IPO price because their value as a company rose (which the money help speed up the growth). That is the true purpose of an IPO, raising money to grow the company faster and in return, the investors profit from that growth. Buying into an IPO is buying into the company's future growth.

Note: This has nothing to do with short term trading in which gambles on the stock buyers rather then the companies. They serve a role in making prices much more unstable causing much greater fluctuation in price. They bring no value to the stock market (the long terms traders or the companies) and are basically leeches.

Just to throw it out there, as for buying established companies, these are usually based on either growth or dividends. In the aspect of dividends, usually the company are more stagnant or has a slow growth in which the dividends provide the some of the profit while the stocks prices stay stable. These are generally less risk (companies with history) but less rewards more akin to bonds. Dividends can also make up the lost from stock price decline if it's high enough which helps reduce the amount of investors pulling their money away from a declining company.

Re:Show me the money (2, Insightful)

Anonymous Coward | more than 2 years ago | (#38214082)

$85 was the initial listing price, it was over $108 at the end of the day. As to how this happened, there's a few reasons. First, at the time nobody really knew what Google was worth, there was still some belief that their Search was worth more than their advertising, because their was a strong belief at the time that internet advertising wasn't worth that much. Which brings us to the second reason, which is that it was 2004, and the dot com bubble was still pretty fresh in peoples minds, and thus people were hesitant to get onboard with any internet company, regardless of how successful. But the real reason it's worked out well is because Google has been a successful, profitable company for the last 7 years, so their stock has continued to go up. If Groupon ever actually turns into a profitable company, people who bought in at $30 and are still holding those shares in 5-8 years will make a hell of a lot of money. It's the interim that's going to be ugly, and there's certainly no guarantee the company will even survive that long. But damn near any company, if you get in on the IPO and they stay profitable for an extended period of time, you will make money.

Re:Show me the money (1)

nedlohs (1335013) | more than 2 years ago | (#38213972)

Bullshit.

An IPO is not always a bad buy-in. You have the underwriters who have an incentive to underprice to keep their institutional clients on the good side. You have the venture capitalists (who given it is an IPO tend to be involved) who want to keep the underwriters happy. So often they win out against the insiders who want the highest price possible and you have a good buy.

of course if the company is a worthless piece of overvalued junk then so will be the IPO.

Re:Show me the money (0)

Anonymous Coward | more than 2 years ago | (#38213680)

It's the greater fool theory.

Re:Show me the money (0)

Anonymous Coward | more than 2 years ago | (#38213770)

"their", numbnuts. In case you haven't noticed, not many companies these days produce anything tangible or of real value.

Re:Show me the money (1)

ackthpt (218170) | more than 2 years ago | (#38214984)

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!

I thought of them more as a company without an original idea and without a better edge on execution. That only leaves luck to run your business on.

Re:Show me the money (1)

Beelzebud (1361137) | more than 2 years ago | (#38215756)

Is that an honest question, or have you been asleep for 10 years? This is Wall Street. You don't have to provide value to expect a yacht full of money.

trying to figure out how this would work (5, Funny)

Anonymous Coward | more than 2 years ago | (#38213452)

If 50,000 people each agree to buy 10 shares of AAPL, Apple will give them the stock for 20 percent off and then give half the proceeds to Groupon?

Nah, I don't think they'd go for that.

Re:trying to figure out how this would work (4, Funny)

History's Coming To (1059484) | more than 2 years ago | (#38213774)

Come on mods, that's funny! I wonder what would happen if you tried to sell Groupon stock via Groupon....

Re:trying to figure out how this would work (4, Funny)

davidbrit2 (775091) | more than 2 years ago | (#38214714)

Try to imagine all life as you know it stopping instantaneously, and every molecule in your body exploding at the speed of light.

Re:trying to figure out how this would work (5, Funny)

alvinrod (889928) | more than 2 years ago | (#38214798)

It's very similar to when eBay acquired Paypal. Paypal sold itself on eBay and eBay paid for the auction using Paypal. No one is still entirely sure how that works, but one investor was quoted as saying, "Favorably."

Re:trying to figure out how this would work (1)

Yvan256 (722131) | more than 2 years ago | (#38215370)

Nobody's seeing the humor in that comment? Give that guy at least a +1 funny.

Re:trying to figure out how this would work (1)

vlm (69642) | more than 2 years ago | (#38214670)

Where I live, groupon only offers services at a discount of marked up price. So, the going rate for a non-X rated short massage is $25 and we'll mark it up to $100 and offer it via groupon at half off only $50. ditto car detailing at half their normal $60/hour rates, landscape services where they pay the illegal $5 cash after mowing the lawn and charging you $80 but now only half price, etc. Does anyone get actual "stuff" from groupon deals, like walk away with a physical object?

A better analogy, would be if you buy shares in the groupon ipo, in a market where "ten bucks per trade" is a good starting point for a commission, instead of charging $100/trade we'll let you buy at 50% off only $50 per trade. Whata deal!

Re:trying to figure out how this would work (1)

hxnwix (652290) | more than 2 years ago | (#38216234)

Where I live, groupon only offers services at a discount of marked up price. So, the going rate for a non-X rated short massage is $25 and we'll mark it up to $100 and offer it via groupon at half off only $50. ditto car detailing at half their normal $60/hour rates, landscape services where they pay the illegal $5 cash after mowing the lawn and charging you $80 but now only half price, etc. Does anyone get actual "stuff" from groupon deals, like walk away with a physical object?

Back in September, I used a groupon to get a ham calzone that usually cost me $8 without a drink for $6 with drink included. They refused to clip my free lunch, frequent customer card, however. I still came out ahead, though I wouldn't have if I had maxed out the salad bar with my free lunch. But I didn't. With my CNBC hat on, I'd say this translates into approximately $100 of market capitalization - per American citizen.

Hey, Google... (4, Funny)

boristdog (133725) | more than 2 years ago | (#38213466)

Can we just go ahead and take that 6 billion you offered earlier and call it squaresies?

Re:Hey, Google... (0)

Anonymous Coward | more than 2 years ago | (#38213862)

GRPN still has a market cap of 10$b... (on the other hand, if they would float 100% that would probably drop fast...)

Re:Hey, Google... (1)

FooAtWFU (699187) | more than 2 years ago | (#38214012)

You joke, but Groupon's market cap is still $10 billion, slides in value notwithstanding. (Also, they're up from their low of $14.85 to something more like $16.35 as I write this, so they're hardly plummeting like Tepco [google.com] just yet.

(Now if you want companies that totally destroyed shareholder value over time, though, you should look at Proxim Wireless [yahoo.com].)

Re:Hey, Google... (2)

Rudeboy777 (214749) | more than 2 years ago | (#38214088)

The deal would have never gone through.

Completing a business deal of that magnitude requires going over the books with a fine-toothed comb on the part of the company doing the buying. Groupon's books would not have passed the litmus test, as you're seeing now that they've managed to go public.

Stocks 101 (4, Insightful)

zerofoo (262795) | more than 2 years ago | (#38213500)

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?

Re:Stocks 101 (5, Insightful)

Demarche (963386) | more than 2 years ago | (#38213554)

In a sane world, Share price is a function of revenues. Cash flow and profitability should determine stock price.

There, I fixed that for you.

Re:Stocks 101 (1)

Anonymous Coward | more than 2 years ago | (#38213750)

I know that it is trendy to be snarky on Slashdot, but the OP is correct. It may not be a perfect correlation and there may be certain bubbles that pop up, but overall, stock price is most definitely a function of revenue and expectations of future revenue.

If you are not being snarky, then you should be a millionaire by now with your ability to see these inefficiencies and taking advantage of them.

Re:Stocks 101 (1)

FooAtWFU (699187) | more than 2 years ago | (#38214170)

You miss something yourself. Share price is a function of people. People and organizations which are run by people buy stock and sell stock.

Now, if they want to make money off their stock, then they're almost certainly going to care about revenues, margin, and profit (especially the profit, though quarter-to-quarter the individual numbers there are easier to fudge than revenues).

But there's always room a human being to buy a share of a company and its revenues and profits at much more than the going rate of ~$15 per dollar of annual profit (Schiller PE ratio, S&P 500). Presumably, if the investor is not a total idiot (still possible), this purchase is on the anticipation of future earnings growth. Sometimes this even works out. This may not me such a time.

Re:Stocks 101 (1)

rudy_wayne (414635) | more than 2 years ago | (#38213808)

In a sane world, Share price is a function of revenues. Cash flow and profitability should determine stock price.

There, I fixed that for you.

Absolutely correct.

In the mid 90's I worked for a large well established company (in business for over 90 years). They reported record quarterly profits for 6 consecutive quarters -- and the stock price went down.

Re:Stocks 101 (0)

Anonymous Coward | more than 2 years ago | (#38214108)

Stock prices aren't only determined by current cash flow and profits but expectation on how the company's outlook is.
Microsoft does well when it comes to profits, but it's stock hasn't moved much in 10 years because nobody trusts them to do any major innovation anymore.

Re:Stocks 101 (0)

Anonymous Coward | more than 2 years ago | (#38213936)

What does sane have to do with the stock market? Next you'll be wanting it to reflect reality too..

Are you from the 50's?

Re:Stocks 101 (1)

MadKeithV (102058) | more than 2 years ago | (#38213572)

Did the dot com boom teach us nothing?

That you can get rich if you can get in and out in time.

Re:Stocks 101 (1)

MarkvW (1037596) | more than 2 years ago | (#38214884)

The dot com boom taught us that there are entrepreneurs who start companies with the sole goal of cashing out at the IPO.

Alll the Groupon investors had ample notice of what they were buying into.

People must be listening to their brokers . . . too bad.

Re:Stocks 101 (1)

UberJugend (2519392) | more than 2 years ago | (#38213624)

How does Groupon make money for its investors again? :p

Re:Stocks 101 (1)

aldousd666 (640240) | more than 2 years ago | (#38213854)

in this case it doesn't. capital gains are a speculative variable and are only realized when you SELL.  groupon isn't paying dividends, so effectively, it doesn't make any money for it's "investors."  People are essentially only able to bet on the share price going up or down, which has at this point nothing to do with the company itself other than they (the company) inspire people to run away at breakneck speeds.

Re:Stocks 101 (1)

MrGimpy (2462416) | more than 2 years ago | (#38213704)

Share price is a function of revenues. Cash flow and profitability determine stock price.

This should usually be the case. But aside from the dot-com and social-media bubbles, there are cases where strong growth prospects may justify a share price premium, even with negative cash flows and in the absence of revenues. Valuable intellectual property (ex. patents on the next wonder drug with promising Phase 3 results) and other barriers to entry should make some companies worth more than others, all else being equal. Groupon, of course, has extremely low barriers to entry.

Re:Stocks 101 (4, Interesting)

vlm (69642) | more than 2 years ago | (#38213724)

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.

Re:Stocks 101 (1)

sydneyfong (410107) | more than 2 years ago | (#38214022)

The *overall* average/aggregate stock prices for a particular economy may be affected quite a bit by government policies, but
1) the effect is not so large as you claimed, and
2) your theory does not account for the obvious fact that well managed (and lucky) companies see their share price sky rocket while the badly managed ones go bankrupt (i.e. value goes to near zero).

It's obviously not a wiki cut and paste, because it's just plainly wrong. Just take off your tinfoil hat and look at the reality, instead of making up (or worse, believing in) baseless conspiracy theories about how the government is out to get you.

Re:Stocks 101 (1)

vlm (69642) | more than 2 years ago | (#38214760)

The *overall* average/aggregate stock prices for a particular economy may be affected quite a bit by government policies, but
1) the effect is not so large as you claimed, and

You must be looking at hyper-short term, like hour to hour, or even medium term like years.

You can't seriously claim that:

Going from a funds rate around 20% in the early 80s to 0% now does not have a large effect?

"Cash for clunkers" had no effect on sales/profit?

The repeal of Glass-Steagall had a not-so-large effect on the banking industry?

OSHA/EPA had no effect on plant profitability?

LOL....

Re:Stocks 101 (0)

Anonymous Coward | more than 2 years ago | (#38213746)

Share price is a function of liquidity ratios. Not revenue as the goal of a company is not to make money but boast its share price. They need to sit on large amounts of cash and have lots of liquid assets they can sell in a moments notice. That is what makes shareholders and HFT computers set the price.

Re:Stocks 101 (1)

bluefoxlucid (723572) | more than 2 years ago | (#38216084)

WRONG. I've made lots of money (30% gains in under 2 weeks) on stocks that were operating at a loss. The company had good fundamentals, and was operating at a $10M loss for the quarter--the prior quarter was a $26M loss.

Share price is a function of what people will pay. You buy in low, you ride the price up. The news says something that draws interest, up goes demand, up goes price. You realize this shit is way overvalued. The stock has been climbing and climbing. You look at candlesticks, you see fluctuations, resistance levels, you see that people fought to buy in like crazy and the buyers held the price firm, but it has stalled. You distribute, selling to these fools who go, "Wow this is a good company, and their stock is climbing and climbing, I should buy in." It goes up another 1%-2%, comes down a bit, climbs back up but not quite, comes down again ... double top, everyone bails because they know what that means: too much weakness, it can't make higher highs, it's going to enter a downtrend. Sell out to the rest of these fools, take their money and run, and down goes the stock price.

Then it bottoms out at a known support level. The high risk traders jump in to hold it up there, you wait. Volume starts to come, you buy in because it looks safe--3%-6% above the bottom (those high riskers just made 6% in two days and you didn't). The share price starts reaching its resistance level ... oh, and announces earnings, QUICKLY spiking (or gapping!) right through resistance--sell, because it's way overbought, take more money from those idiots. Down it comes--and with luck, it finds new support at the previous resistance line, and you buy back in and go looking for the new top.

News for Nerds (-1, Offtopic)

Anonymous Coward | more than 2 years ago | (#38213506)

Can someone explain how Groupon, a business with no tech relevance other that its on the Internet (and who isn't these days) or its stock performance can be considered news for nerds?

Editors, please stay in your lane. This site is getting ever more irrelevant the further it gets from its original purpose.

This is an on-topic meta comment.

Business are getting smarter, too (5, Insightful)

tgd (2822) | more than 2 years ago | (#38213516)

They're starting to realize that Groupon customers don't translate into long-term customers, which makes the value of offering deals on Groupon very low.

Re:Business are getting smarter, too (1)

AdrianKemp (1988748) | more than 2 years ago | (#38213622)

I dunno, so far I've purchased 3 groupons and two of those companies have seen (limited) repeat business from me. Actually a third (fourth) got my business because even though the groupon had hit the limit before I saw it I didn't know they existed until that exact moment.

That's a much, much better batting average than billboards, newspaper ads, etc.

I highly suspect that groupon has a higher (customer) return value than most advertising.

Re:Business are getting smarter, too (1)

heinousjay (683506) | more than 2 years ago | (#38213804)

I highly suspect that your anecdotal evidence is worth the paper you wrote it on.

Re:Business are getting smarter, too (5, Interesting)

stwf (108002) | more than 2 years ago | (#38213674)

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.

Re:Business are getting smarter, too (0)

Anonymous Coward | more than 2 years ago | (#38215088)

Groupon worked reasonably well for our dance studio because we have no current customers that pay the official price. As much as it tarnishes my straightforward soul, our pricing structure is a epic of inflated prices and hidden costs - which all end up being struck or reduced upon signing the contract. I think it's silly, but I can give first hand testimony on how well it has smoothed out potential ruffled feathers.

But it doesn't matter in the long run. When the revolution comes I'm going to hacking stupid rich white ladies to death with a machete. The nice floors of the dance studio make cleaning a snap.

Re:Business are getting smarter, too (1)

Anonymous Coward | more than 2 years ago | (#38215274)

You have the perfect business for using groupon. Create a couple of new basic intro to yoga and offer them at price X sell them on groupon for the X*50%. If any existing people complain offer explain they are very simple classes to get people interested and if they are interested give them a discount to just those classes or even let them in for free since they are already paying people.

You separate new from existing, you can limit the number of people in classes, you teach just a few simple items that everyone can do so you get them interested and then use that to get them into your regular offerings when these classes have ended.

Also since most of your costs are already fixed you would have to pay the extra time for instructors but if your instructors where already fully being used you would not be doing this advertising.

Re:Business are getting smarter, too (1)

aldousd666 (640240) | more than 2 years ago | (#38213886)

not only that, but the deals at groupon started out to be so extreme like 45% off something, or 50% off something else... there isn't a whole lot of places you can take that except lower. when you start replacing all of your 45% deals with 10% off deals, people who would have been excited about using groupon before stop checking the site, rinse lather repeat.

Re:Business are getting smarter, too (1)

BisexualPuppy (914772) | more than 2 years ago | (#38214452)

That's stupid, and you are an attention whore. "whoo, look at meee, I don't use the same font as you, look at meeeee". So gay.

Re:Business are getting smarter, too (1)

foradoxium (2446368) | more than 2 years ago | (#38215718)

source?

I can tell you my wife and I have found a few businesses that will get repeat business from us, solely because we found them through groupon.

For instance: car detailing. you drive by a detailer every day, but something just puts you off about them. You find they're offering a groupon for 20 bucks for a 120 detail. you say "hmm..20 bucks, I'll eat 20 bucks to test them." And it turns out they're definately worth 120. Not only do you decide to take your car there every few months, but you start telling people.

For companies, its just marketing; loss leaders. Which when done right is a proven business tool.

Get your groupon stock now! (5, Funny)

sociocapitalist (2471722) | more than 2 years ago | (#38213532)

50% off, limited time only!

Re:Get your groupon stock now! (-1)

Anonymous Coward | more than 2 years ago | (#38213630)

50% off topic, limited time only!

FTFY

Re:Get your groupon stock now! (0)

Anonymous Coward | more than 2 years ago | (#38215302)

$17 stock for $8.50!

I guess groupon gives 1 share of stock for $4.25, and then also pays itself $4.25 for the service of... selling... groupons?

They would never do this though. While it would generate revenue for them to pay off their accounts payable to retailers who have used groupon, it would also set them up as a company that is owed money from groupon - which is something I'm sure they don't want to be :)

Of course inflating revenue numbers by increasing accounts payable and receivable isn't something I'd put past them.

why do I get the mental image (4, Insightful)

circletimessquare (444983) | more than 2 years ago | (#38213634)

of some 60 year old clueless investors with money to burn but not much web savvy, some 30 year old wall street sharks eager to pump a price and cash in on their cluelessness, and a bunch of 20 year olds rolling their eyes and going to pick up their cheap cupcakes?

because the story can't possibly be "promising tech company not so promising". so nobody learned anything from the dotcom crash 10 years ago? is it 2001 or 2011?

this story arc is completely and utterly predictable. clearly i'm not some wall street genius: i'm certain most people posting on this site saw this whole story arc coming too

so why the bleep is it still happening?!

Re:why do I get the mental image (-1)

Anonymous Coward | more than 2 years ago | (#38214198)

Well, people still think we'll have Moon colonies and people think 3D printers will mean we'll print 747s in our living room. People are STUPID.

Re:why do I get the mental image (2)

robogun (466062) | more than 2 years ago | (#38214278)

The explanation is just about half of the population has less than average intelligence.

Somehow many of those have more than average money, and devices like this IPO are a great way to get it.

The problem is greed (5, Informative)

Anonymous Coward | more than 2 years ago | (#38213656)

Groupon is dumping VC money directly to the founder's pockets [businessinsider.com] and screwing the businesses that participate [techcrunch.com]. That combination will result in failure.

Re:The problem is greed (1)

Anonymous Coward | more than 2 years ago | (#38214450)

>Groupon is dumping VC money directly to the founder's pockets. That combination will result in failure.
The founder sounds pretty successful to me.

Re:The problem is greed (3, Interesting)

sugarmatic (232216) | more than 2 years ago | (#38215306)

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?

How does this work? (4, Interesting)

Bazman (4849) | more than 2 years ago | (#38213732)

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...

Re:How does this work? (2, Interesting)

Anonymous Coward | more than 2 years ago | (#38213846)

It was never an online coupon business. It's been an *investment scam* from Day 1. The people running it have taken many hundreds of millions of dollars of investor money... for themselves. The coupon side of it is just a front, and has lost money every day.

Holy crap... my CAPTCHA is... "tulips"... what a coincidence!

Re:How does this work? (0)

Anonymous Coward | more than 2 years ago | (#38216002)

Great, now you have revealed the captcha and the spam is going to flow!

Re:How does this work? (2)

mattie_p (2512046) | more than 2 years ago | (#38213942)

Easy, don't pitch price B. Pitch price Y, so that you support small mom and pop businesses with a sustainable profit, and give them your repeat business. Groupon is nothing more than a means of advertising a discount, except that instead of charging a set price (as in a newspaper) for distributing the coupon, they charge a percentage of the sales. Based on what I've seen elsewhere, groupon generally takes about 50% of Price Y. That may or may not be accurate, but I suspect it is somewhere in the ballpart. After all, iTunes charges 30%.

Re:How does this work? (1)

glop (181086) | more than 2 years ago | (#38214006)

Company A has a contract with Groupon, they are offering a crazy deal for promotional purposes.
The deal is usually at a loss for them and Groupon provides a couple things to the business:
- a lot of advertisement to people eager to read about deals
- a simple way to explain the deal is for one time only and you can't come back and bargain to get the same deal again: it's a groupon, once the groupon is done you don't expect to have this deal on the table again.

Your idea sets a precedent of bargaining which is not very good for the business.

That said, a variation of your idea is for a competitor of Groupon to offer a similar deal to company A but with better terms. Groupon takes 50% of what the customer pays, so there is a LOT of room to undercut them for anybody able to deliver the goods on the advertisement/traffic part.

Re:How does this work? (1)

vlm (69642) | more than 2 years ago | (#38214860)

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...

you missed that americans are trained not to barter except in automobile and real estate transactions... where most of them are not good at bartering, can't blame them for lack of experience, I guess.

You've described the "Kohls department store" retail model. A quarter of the store is 75% off all the time. If you happen to be there and see something you could use and its on sale that week, how wonderful for you. If you needed socks today, and they're full price, sucks to be you, hope you enjoy paying $40 for a pack of socks. Its high risk shopping. I hate going there. You'd think I could argue with the cashier and management to just get 25% off everything all the time, in fact get rid of the whole concept of retail vs sale price, but that's just not done here.

groupon is just doing the bartering for you, online, as a "shoppers union" negotiated contract, essentially. Or at least thats what they're trying to do, as they slowly march themselves lemming like off the cliffs.

Re:How does this work? (1)

icebraining (1313345) | more than 2 years ago | (#38215382)

Isn't that called bargaining? I thought barter was direct exchanges without the use of money.

I think Groupon and similar services do more than that: they double as an advertisement agency, since by subscribing to their coupons, the buyer is informed of a lot of products and companies they might not know about.

If you already know and want the product, the seller has a much lower incentive to give you a discount.

Re:How does this work? (1)

sugarmatic (232216) | more than 2 years ago | (#38215436)

This is evil- and wonderful. A 'craigslist' for subverting Groupon deals...love it. Maybe a Groupon deal aggregator...

Seriously, I have not met *anyone* with a Groupon economic success story- repeat business is simply not what happens. The conversion rates for a single full-price re-sale typically have to be in the 25% to 30% range to *break even* at retail gross margins. That kind of conversion is simply not in the realm of probability for the vast majority most businesses. A lot of small businesses find that part out very quickly. What you hear more often is a soft success- getting the name out there, etc., but the expense has been dubious of not outright loony.

People see Groupon companies as a joke (2)

sarbonn (1796548) | more than 2 years ago | (#38214764)

When Groupon first came out, it had some promise, but so far, especially in my neck of the woods, every time I see something affiliated with Groupon, it's almost always some massively over-expensive product that I never would have bought in the first place, and even with the "deal" have no intention of buying in the future. People sign onto Groupon because of the initial hype, or hear about really good deals in very large cities where it does work, but then read the first few weeks of ads that come through and then immediately delete the app and stop going to the web site.

The company, however, still pushes the idea that it's profitable, even though the only people making profit seem to be the main owners of the company who are basically trying to sell a product that too few people want. Add to the fact that they've hyped the crap out of their initial offerings over and over again, only to pull it back before release, and people now see Groupon as what looks like a scam (even if it's not). So, it's stock is going to come out, go up really fast with the people who seem to think an initial offering is a gold mine, and then tank before disappearing forever.

Yoda says.. (1)

jkyrlach (1076609) | more than 2 years ago | (#38215010)

"Can not get your price up" Maybe they can incentivize potential shareholders with a enticing coupon on their stock...

These "companies" need a new domain (0)

Anonymous Coward | more than 2 years ago | (#38215506)

Maybe a .stupid or a .ponzi ?? Investing in hot air and frantic armwaving...

AT&T Could Have Told You (1)

makoto149 (953340) | more than 2 years ago | (#38215580)

The whole "friends and family" thing just doesn't work. Another shitty idea bites the dust. RIP, Groupon. We hardly knew ye.

I can see the Onion headline now (2)

silverpig (814884) | more than 2 years ago | (#38216072)

Groupon CEO regrets selling stock via groupons "I had no idea that selling something for 1/4 its normal price was such a shitty idea. Who in their right mind would ever use this to sell anything?"
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