Groupon Stock Price Drops Over 14% in Three Days!

The stock market had a real bad day today because of Eurozone and Italy worries and things there are going to get worse. Nevertheless, after Groupon's IPO, even with the Bear Market rallies, Groupon has been a loser three days in a row. 

Nov. 7, 2011. Dow Jones rises 0.71% yet Groupon drops 0.54% (after hours drop another 0.85%)

Nov. 8, 2011. Dow Jones rises 0.84%... Yet Groupon drops a massive 4.12% (after hours drop another 0.12%)

Today, Wednesday Nov. 9, 2011 (USA time) Dow Jones takes a beating on Euro news and sinks 3.20%.  Groupon decline accelerates and drops another massive 3.53% (after hours drop another 0.08%)

In three days, Groupon shares have lost 14% of their value. I predict Groupon is heading for penny stock within 2 years. This is a serious opportunity to short this company stocks.

On top of that, the news is all bad for Groupon. From the Wall Street Journal just today!:

Merchants Grumble Over Groupon Late Payments

Competitors are threatening the daily deal site leader by offering quicker payment to merchants, possibly jeopardizing a key part of the company's business model.

Groupon, which offers online deals for local merchants, keeps itself in cash by collecting money immediately when it sells its daily coupons to consumers while dragging out payments to the merchants over 60 days.

As I have said many times before, the Groupo business model won’t work. All business deals, in order to be successful, must be beneficial for all sides concerned. The business owners who make deals with Groupon lose out big time. 

From that same article:

"The payment timing is so erratic you can't count on any of that money helping to pay your bills," says Mark Grohman, owner of Meridian Restaurant in Winston-Salem, N.C.

After running three Groupon promotions this year and last, Mr. Grohman says he won't use the service again in part because it puts too big a strain on his cash flow. "With smaller margins in restaurants, you need that capital in the bank as fast as possible," he says.

Heissam Jebailey, co-owner of two Menchie's frozen-yogurt franchises in Winter Park, Fla., says he also has begun to view Groupon's installment payments as too slow.

"You want to get paid in full as quickly as possible," says Mr. Jebailey, who has run deals with both Groupon and its rival LivingSocial Inc. offering customers $10 of frozen yogurt for $5. He says both promotions were successful but that he'd only use Groupon again if the service promises to pay faster. "We're the ones that have to cover the cost of goods for giving away everything at half price," he says. "I will not do another deal with Groupon unless they agree to my terms."


Here's a video from Market Watch that came out today, too. Groupon's Payment Lag Irks Merchants:

Crisis in Groupon Boardroom & Greek Coup Du Etat?

It's been written on these pages since the beginning of 2011: Groupon has BIG trouble. Now, with events in Greece completely throwing a wrench into the Eurozone and markets, it looks like Groupon could suffer greatly from events in Athens. It must be confirmed by the latest news today: There must be crisis in the EU and the Groupon boardroom bordering on a full-blown panic.


Here's the details you need to know:


Groupon IPO is Nov. 4th, 2011. They are expected to price on Nov. 3.


The stock market is crashing on fears of a Greek referendum on an EU funded bailout. Who is in charge of Greece? No one knows.


The Dow Jones lost nearly 2.5% today.

Nov. 1, 2011. Two days before Groupon pricing Dow Jones

drops nearly 2.5%... Situation in Europe up in the air. 

Groupon must IPO. Their situation is getting serious. They have yet to turn a profit and, if the books were closed today, they'd be over $221.7 million dollars in the red. Groupon is running out of cash.


SF Gate reports:



Groupon remains unprofitable. The company had $243.9 million in cash at the end of September and still owed merchants $465.6 million. The 8.4 percent increase in cash from the prior period was outstripped by the rise in marketing costs, which jumped 37 percent to $234.4 million.


The company has used 85 percent of the $1.11 billion it has raised from venture capitalists and other investors to buy equity from early investors eager for a return, instead of funding growth. That is contributing to a potential cash crunch, said Sam Hamadeh, chief executive officer of PrivCo, which provides financial data on more than 20,000 private companies.

With two days to go until IPO and the stock market's crashing worldwide, then Groupon must be in a panic... If not, then the stuff they were smoking when they rejected the $6 billion dollar offer from Google must be really killer weed! 



*NOTE & IMPORTANT UPDATE: Let me go on a limb here. I predict that Greece will exit the Euro as Panpadreou has replaced all his military leaders (they were NATO experienced). I suggest that this portends a Euro zone departure. This is roil markets even more in the next 24 hours. This move seems to be an effort to head off a military coup de etat.


Mish Shedlock has an interesting take in Is Papandreou Preparing for a Military Coup or Afraid of One?

The Business World’s Poster Child for Failure 2011: Groupon

Groupon is about to go IPO in the USA. The failing stock market, the Euro problems, the faltering US Dollar and Groupon's own consistent mistakes make me think that Groupon's IPO will either be postponed or a great disappointment for investors.


I've said many times that Groupon was going to be a massive failure. The most recent was a post about how Groupon has disappeared from the face of the earth (in Japan). For more on that, refer to The Great Groupon Disappearing Act:


Recently, Groupon Japan has completely dropped off the map. I never see their online ads anymore at all (sign of over extension) yet you see their competition all over the place.

The biggest two that seem to be kicking Groupon (hereinafter referred to as "Groupoff") in the royal behind is a new-comer called G-Market and Recruit's own Pompare.

You see online banner ads for these two constantly. I haven't seen an online ad for Groupon for 9 weeks in a row now (and trust that I am on the Internet constantly).

The other thing that makes me realize that Groupon Japan is almost as messed up as Groupon in the USA is the fact that, while you see no banner ads for Groupon in Japan on the Internet anymore, if you watch a minor cable TV network (I think it is J-com) you see their ads every once in a while.


Let me ask you a question: What kind of an idiot advertises an internet business on TV yet doesn't advertise on the internet at all?


Last year, when start-up Groupon refused a $6 billion dollar offer from Google, you just knew that CEO Andrew Mason and Groupon owners must be smoking some very good weed. Couple that with his stupid followup to the Japan New Year's Oseichi Ryori disaster, along with Groupon's cost versus sales reports and you have a sure-fire loser.

Groupon advertised the above and delivered the below.

Then the Groupon CEO insulted people with an amateurish and crass apology.

It all goes back to a well worn stubborn and obstinate attitude that foreigners have when they bring heir business to Japan. Please refer to Groupon Ex-Partner Chimes In:  


Groupon has committed the Cardinal sin that many companies from the west committed before in this country; they came to Japan and didn't make the effort to understand the Japanese and this country well enough. Now they will pay the price for that mistake. I've written before in an article entitled, "How New Companies Can Succeed in Japan - and How They Fail." It's about  how, in spite of the fact that giant players from the west came to Japan, with great products and a successful track record in the west - such as Pepsi Cola, Universal Studios, E-Bay, Carrefours, etc. - they failed miserably because they didn't take the time to learn the intricacies of Japan and how to do business here.

The companies that do well here, Disney, Coca-Cola etc. Did bother to understand the market and now they dominate. McDonald's, in fact, even changed their name to fit in with Japanese pronunciation! McDonald's in Japan is not McDonald's. It is "Makudonarudo." Go up to any Japanese and ask them where a McDonald's is and they won't have any idea what you are talking about.

But I digress...

Groupon, I predict is the next in a long line of failures in Japan. In fact, today I met with a friend who is the head editor of one of the biggest magazines in Japan and this editor said, "There's no way for that company, Groupon... Their reputation is already shot. And, in Japan, reputation is everything. The women don't trust it."

This was the first time that someone who knows how the average Japanese woman feels telling me what I had already suspected; Groupon Japan has a terrible reputation with the women in Japan and it's getting worse. 


Now, today, once again, we have another example of Groupon gross mismanagement. 


When a company files for the right to sell Initial Public Offerings (IPO) they must, according to SEC rules, go into a "quiet period" whereby potential investors are able to go over their company reports and sales, etc. to come up with ideas of potential value. It is against rules for that company to be making public announcements that may slant or create unjust publicity for that company.


But, just as with the inept handling of the Japan New Year's deal, Groupon CEO Mason has gotten himself in trouble again with making company announcements that he must have known would be leaked to the public.


Yahoo reports:

Commentary: Has the company run afoul of quiet-period rules?

Daily-deal pioneer Groupon Inc. appears to be hell-bent on becoming the poster child for business schools and budding entrepreneurs on how not to go public.

Since the company filed its IPO prospectus for potential investors on June 2, Groupon appears to be close to running afoul of the "quiet period" that is required of businesses once they file with the Securities and Exchange Commission.

Last month, Chief Executive Andrew Mason wrote a memo to employees about a story he had read (in the car, while driving alone, apparently). The report, one in a barrage of negative stories in recent months, wondered whether Groupon is running out of cash. Mason wrote a long defense of his company's business model, its stance against rivals and an explanation of the bizarre accounting metric used in Groupon's financials that raised eyebrows with regulators. (His message to the troops was obtained by our colleagues over at AllThingsD. Read Mason's full memo.

Last week, an outside PR person for Groupon pointed another reporter in the direction of that same email, fueling speculation that the memo was written by Mason knowing that it would be leaked. Read Private Equity Hub's run-in with Groupon.

Let me predict right here that the Groupon IPO will either be postponed or a failure. Couple this bad publicity and inept management with the current serious decline in stock prices and you have the ripe situation for Groupon IPO to be valued at something like $20 a share. That would be a massive failure.

The situation gets worse when you see that the recently hired PR expert by Groupon has already quit and you can just smell the scent of an organization that is demoralized and in disarray.

In addition to the furor over the email sent to staff, Silicon Valley PR veteran Brad Williams, hired only two months ago as Groupon's head of corporate communications, recently quit. A Groupon spokeswoman said it was a mutual decision; Williams did not return calls, but reports indicate that he may have butted heads with Mason.

"It just doesn't seem to get uglier than this," said Rocky Agrawal, an entrepreneur who advises start-ups, of the company's IPO process so far. Agrawal has found serious problems in Groupon's financials and has written about his concerns.

Attorneys appear to be split on whether Groupon has violated the SEC's rules, and whether employee communications can be considered speaking to potential investors. In 1996, San Francisco-based Wired had to pull its IPO after magazine publisher Louis Rossetto wrote a similar rally-the-troops email. In 2005, the SEC revamped its rules, albeit slightly.

It is reasonable to think that Mason wrote the memo purely to spur morale, feeling frustrated by the restrictions imposed by the SEC. But how he handled this communication is calling attention to his leadership.

Seriously? After all these screw ups, with the Super Bowl ads, Japan, etc., etc., people are just now figuring out that something isn't quite right with the CEO? You're kidding me!

Mason has fashioned himself as a sort of David Letterman CEO — quirky and funny, with an odd sense of humor that pervades the company, its deals and even its poorly received Super Bowl ads in February.

But he cannot be so naive as to not realize that sending out a lengthy, defensive-sounding email to thousands of employees would not end up in the press eventually. There are other, more concise ways Mason could have communicated. He also barely reminded employees of the regulatory restrictions that Groupon is under, only to say "we've refrained from defending ourselves publicly," and that "for now we must patiently and silently endure a bit more public criticism as we prepare to birth this IPO baby."

Under the harsh spotlight of the IPO, when companies are required to refrain from actions that might be seen as pumping up the stock ahead of the debut, Mason's behavior seems childish and impetuous.

"I have been doing this a long time," said Scott Sweet, senior managing partner at the IPO Boutique, about following the market for initial public offerings. "That IPO really bothers me."

Sweet's concerns include the issues that have been noted in recent months: the firm's high marketing costs, major competitors and heavy losses. But he is also now calling out Mason, Groupon's eccentric chief.

"No matter how the CEO spins it, he is not talking to the choir," Sweet added. "He is talking to his ego."

Whether this brouhaha will affect how Groupon is received by investors has yet to be seen. The company has not yet started its road show to tell its story. But so far, it's serving as a textbook case on what not do to during the IPO process.

Here's a few more tidbits that I have gathered about Groupon that alert readers may be interested in: Groupon grossed $700 M (USD) but spent $413 M (USD) on advertising.

What is the Groupon business model? It is SPAM. Send people spam. In the day and age of Social Media and Social Media Marketing the utter idea that Groupon would attempt to grow their business without a marketplace or social media component and just email seems to be to be absurd. This is a massive failure.

Groupon in Japan has over 600 people employed in sales going door to door trying to get deals. They use email to sell. That they wouldn't create a marketplace, not have any plan to, shows a lack of understanding of Internet 2.0 and today's Internet users.

Groupon was a great business model two years ago, when there were no competitors. But now, there are many. And those competitors have or are building marketplace portals. I cannot comment too much about the rest of the world, but, at least in Japan, Groupon is dead. 

There are also stories all over the Internet about Groupon shady accounting practices and these all point to Groupon painting a much rosier picture than reality. 

Like I said, the failing stock market, the Euro problems, the faltering US Dollar and Groupon's own consistent (and constant) mistakes make me think that Groupon's IPO will either be postponed or a great disappointment for investors.

Of course it will. There's too many bad factors running against Groupon.

Come to think of it, have you heard anything good about that company in the last 6 months? I haven't. 

Groupon, I predict, will be the business world's poster child for these turbulent times; a highly touted and very visible new company jumps from the starting gates on the crash headlong into reality and the real world. Throw in shady business and accounting practices and you have a model reflection of the US government...

Shady business and accounting practices? US government? Everyone knows how well the US government is doing!


Hello Groupon! welcome to IPO in the stock market crash of Autumn 2011. As with everything you've done so far, your timing is impeccable. 


UPDATE: As I predicted:

DealBook: Groupon May Delay Its Plans to Go Public http://dealbook.nytimes.com/2011/09/06/groupon-weighs-delay-to-i-p-o/?emc=eta1http://dealbook.nytimes.com/2011/09/06/groupon-weighs-delay-to-i-p-o/?emc=eta1 By MICHAEL J. DE LA MERCED The online coupon giant is considering pushing back its long-awaited initial public offering amid the continuing market volatility.

Thanks to Jeff Behr

Insanity: Japanese Government

The Japanese government must be totally out of their minds. Which is worst the US government of the Japanese? Hmmm. Good question:

MISTER ROGERS - YOU CAN NEVER GO DOWN THE DRAIN

On August 4th, I wrote a short blog post entitled the Japanese Central Bank Throws Away a Billion Dollars Again. It was another protest over the Japanese government repeating past mistakes by using tax monies to buy dollars to support the yen. I wrote:


This morning when I woke up I checked the financial markets, gold, silver and, of course, the dollar yen rate.

I was somewhat surprised to see the yen at ¥76.9-something to the US dollar. A hour or two later, the yen had dropped to its current ¥78.9 per US dollar. Obviously the Japanese Central Bank intervened and bought a bunch of dollars.

Fools. When will they ever learn? They keep throwing our hard earned tax money down the drain to stop the yen's rise, but it is all in vain as the yen's appreciation continues.


I would later learn that it wasn't a "billion dollars" (of course not!) but $56 billion dollars. I wrote that history would repeat itself and that these types of market interventions never work. Japan has tried this sort of thing over and over and the results are always the same; they may halt, temporarily, the rise of the yen, but they cannot stop the yen from rising as interventions do nothing to change market fundamentals.


Remember, less than one year ago, for the first time in 15 years, in Sept. of 2010 when Japan intervened to stop the yen's rise?


From Bloomberg: 

Japan intervened in the foreign-exchange market for the first time since 2004 after a surge in the yen to the strongest against the dollar in 15 years threatened to stunt the nation’s economic recovery.

Finance Minister Yoshihiko Noda confirmed the intervention, speaking to reporters today in Tokyo. He said Japan contacted other nations about the step, without specifying that today’s measure was taken unilaterally. Chief Cabinet Secretary Yoshito Sengoku said the ministry considers 82 per dollar to be the line of defense, after it reached a high of 82.88 earlier today.

Japan hadn’t intervened to sell yen in the foreign-exchange market since 2004, when the yen was around 109 per dollar. The Bank of Japan, acting on behest of the Ministry of Finance, sold 14.8 trillion yen in the first three months of 2004, after record sales of 20.4 trillion yen in 2003. Noda didn’t say how much was used in today’s action, while that figure will be released at a later date.

Japan is now slipping down a very dangerous slope and I fear that the slide is increasing in velocity. This makes for at least three publicly announced interventions in less than one year.


As I wrote, interventions never work. Mish Shedlock sensei! back me up on this one, will you? 


Japan Announces Currency and Stock Market Interventions: 

Countries are now playing a game of "Top This" to see who can do the dumbest things.... If stocks are ready to go up they will. If not they won't. Intervention will accomplish nothing other than create an environment of suspicion that stocks need to be propped up or they would fall. When intervention starts, investors are deprived of normal market signals and will not know if share prices have really bottomed or not. This silliness by Japan is going to create massive mistrust, and massive mistrust is never good for the markets.

I write over and over until my fingers are bleeding that the government is run by idiots. For over twenty years, the clowns "at the helm" of the Japanese government have been creating debt and trying to manipulate the markets. We have the current situation to show for it: Massive public debt and an economy mired in the mud.

Last year's currency intervention was to stop the yen when it was at about ¥82 to the US dollar. The Japanese Central Bank threw $63 billion dollars at the problem then. 

FIVE DAYS ago, the yen and dollar rate was ¥76.9 yen to one US dollar. The Japanese government threw $56 billion dollars at that. They were patting themselves on the back because the yen quickly shot past ¥80 to the US dollar. That was on August 4, 2011.

As of 6:38 am Aug. 9, 2011

Now, today, it is August 9, 2011 and the yen - dollar rate sits at ¥77.77 to one US dollar. The intervention, after a short five days is shown to be a total failure.

The most laughable part of this is the Japanese Finance Minister Yoda, Noda, whatever his name is actually said:

"It's better to wait for a little while before judging the impact of intervention," he told a news conference.




That's like the big race at the horse track. The results have been made official, the winning horse has already been claimed winner and is already in the winner's circle and Noda is holding a losing ticket. Yet he says, "We'd better wait awhile. There might be a claim!"

Ha! Ha! Ha!

The Dow Jones stock market crashed today 5.55% (-634.76). The Nikkei will follow suit. The yen is almost back to where it was a week ago.

What's the Japanese government solution to the problem?

Intervene to support the yen! Reuters reports "Japan signals readiness to intervene again":

Economics Minister Kaoru Yosano warned markets on Friday that they should not assume that Tokyo is done with stepping into the market, while stressing again the need for Japan, Europe and the United States to adopt common policies to contain the pessimism about the global economy. 

Insanity: Doing the same thing over and over again and expecting different results... - Albert Einstein