Big fat I told you so (to anyone on HN I've predicted this to in the past)...
Board Member/Director leaves... and what this signals:
[1] Employees Confused.
[2] Investors are going to really pissed off.
[3] Stock is most likely going to continue to fall. (The signalling from this step down is huge).
[4] It hints at possibility that the directors have had something to hide; something has been discovered; they have been secretly pushed out; or they have found out that something unethical has been going on in higher management and want to distance themselves from the company. Put another way, jumping out of a company when you aren't even pushed, when you are massively vested in it's success pretty much signals to everyone that Groupon is a sinking ship.
If they haven't filed bankruptcy by 2013 I'd be mightily impressed!
I can't wait to hear what Rocky Agrawal has to say about this.
anyone would want to invent a time machine for a cool $5 billion dollars?? because that much Andrew Mason would pay you to get back to the table split seconds before he said "no" to Google's "we will pay you $6 billions for your website".
Rumor has it that Google got a look at their books during the negotiation and cancelled the deal. They publicly gave the story of groupon denying Google to allow them to save face and attract more investors
That's very unnerving if it's true, because, by going along with "Groupon is worth $6bn because Google offered that to us and we turned it down", implies Google had a hand in creating that extremely high perception before their IPO.
If Google did infact have the chance to look at the books (which I'm sure they did), and then allow that "$6bn meme" to circulate -- well, that's evil isn't it?
To expand on that a bit: If google had made public what they thought they found they would have been very much open to a lawsuit with some significant chance of success.
Breaking an NDA in such a situation is unheard of, every investor is supposed to make up their own mind and do their own homework before they decide to invest or not.
Any legitimate concerns about this would revolve around the question of whether or not groupon was forthcoming in their pre-IPO filings. If there is any proof to be found with google you could try to persuade a judge to grant a subpoena of people at google familiar with the deal, but google should never by themselves reveal any of this.
Although nothing preventing Google from releasing a statement saying they decided not to buy Groupon.
If the story is true, it seems very strange that they wouldn't set the record straight (obviously without breaching any confidences or disclosing anything specific about Groupon).
I'd imagine in those negotiations there are agreements that everyone has to basically be tight lipped even after the deal falls apart. On the flip side, if Google had said too much it might make other business nervous to enter into negotiations with them in the future.
Someone wasn't so tight lipped that the word didn't get out that they offered $6 billion for the company.
If that wasn't true, someone in Google did have obligation to deny it - denying it off record with no further comment would hardly have been saying a lot.
They would have gotten slimed with the evil moniker if they had decided to trash Groupon in the press. Damned if they [do|don't]. Adopting that slogan was one of the dumbest things they ever did, people love to bash them over the head with it.
Actually most of the early investors who would have won in that deal got a lot of money out from the later stage investors and more in the IPO.
I'm not sure they'd have made more in that deal. Honestly most of the folks invested early made a ton of money and now the guys at the backend are looking for a chair as the music ends.
Is it possible that the dodgy side of groupon was seen earlier and predicted earlier by the google MnA team and it wasn't Andrew Mason that said "No" ?
Im sure if nothing has changed since the early days of groupon till now, the skeletons now are still the same as before, google was just smart about it, did the math and said no way and allowed Andrew to walk away and speak about the deal however he wished.
On another note, if groupon collapses is it a good thing for the daily deals market ie, more smaller ones take their place, better competition better monetization strategy or does it spell the end for this market ?
Why would Andrew Mason pay $5billion when the company is still worth $6.83B today?
Giving away $5B to get the company's valuation to $6B would only make sense if Groupon were valued below $1B right now. (unless you're insinuating that in the near future, Groupon will be below this threshold, or even in bankruptcy)
its only worth $6 on your favorite stock website, same way as I am telling you this post is worth $100B just because I say so.
By the time they would find someone to buy it (had to announce somehow to find a buyer) and sign all the documents, the stock would be a penny one, with a market cap around $500MM.
Groupon stink before IPO and it will make people shorting it extremely rich, and unless rules of basic math like 1+1=5 or rules of economy won't change overnight, this will be one of the biggest deadpool everyone post-internet era has seen!
You can try. However, due to the precarious nature of the stock it would be hard to find anyone who will lend it to you. However, if you did find someone willing to lend you a portion, it would cost you almost 100% in fees: http://www.reuters.com/article/2011/11/15/us-groupon-shortse...
But you wouldn't use the same amount of capital on an options trade. For example, if you're bankroll is $25,000, you might use it all to short the stock but it would be foolish to use it all to buy a put. It's more likely that you'd use a much smaller fraction of your stock purchasing unit size for options trading since the risk of losing 100% is higher.
No. Right now, with the bad news already coming out, the harm is increasingly priced into the stock price. The time to short was when they IPO'd and half of everyone saw this coming.
Normally I have a rule of "never short". Wish I'd broken it this time :-(.
Because a short has a hard limit on the possible gain (the amount you got when selling minus the borrowing cost, if you can buy it back at zero when you have to return the stock), but no limit on possible losses (if there is a rally or a short squeeze and the price at which you have to buy it back is ten or hundred times of what you sold it for). This is especially nasty if your trade partner knows you have shorted 40% of the traded stock and he controls 61%: he can demand any price he wants for the 1% you must buy from him to fulfill your side of the trade. http://www.nytimes.com/2008/10/30/business/worldbusiness/30i...
It's already beaten down, but I expect more nastiness for the price when they announce their quarterly fiasco^H^H^H^H^H^Hresults and the IPO lockups expire, both within a few weeks mid-May to early-June.
When a director with a lot to lose (Howard Schultz) leaves so suddenly, one can guarantee that there's something coming which significantly threatens his position outside Groupon and/or reputation. So much so, that he is willing to piss off investors, employees and co-directors by upping and leaving.
I suspect that the writing is on the wall for Groupon.
I'm going to predict that it won't see 2013 without serious restructuring, write-downs and possibly bankruptcy.
I don't really buy that. If CFO and auditors are doing their job any reasonably competent business professional can provide adequate oversight. If the board member isn't capable of adequate oversight the problem lies with the financial information they are being given, very rarely the board members.
You're not really providing much oversight if you're only able to detect problems when they're pointed out to you.
Enron's audit committee was later criticized for its brief meetings that would cover large amounts of material. In one meeting on February 12, 2001, the committee met for an hour and a half. Enron's audit committee did not have the technical knowledge to properly question the auditors on accounting questions related to the company's special purpose entities. The committee was also unable to question the company's management due to pressures placed on the committee.[59] The Permanent Subcommittee on Investigations of the Committee on Governmental Affairs' report accused the board members of allowing conflicts of interest to impede their duties as monitoring the company's accounting practices. When Enron fell, the audit committee's conflicts of interest were regarded with suspicion.[60]
I think Enron is actually a good example of what I mean. I maintain that any generally competent professional can have any legitimate accounting practice explained to them. "I don't get it, tell me where these numbers are coming from," will pretty much suffice. Enron's audit committee simply failed to ask the questions (due to laziness or conflicts). Enron's special purpose entities were sitting in the SEC filings waiting to be found by anyone. As soon as the WSJ reporters asked about them Enron started to implode. The SPEs did not make sense and they fell apart without much more than "wtf?"
Needing financial engineers on your audit committee is a giant red flag that your financials don't make sense.
I think you make a good point, but it still leaves open the idea that groupon may have made these changes to combat a (perceived) weakness in the committee.
When board members quit unexpectedly like this it usually means they have discovered that the management is doing something unethical and they don't want to be held legally liable for it, which they would be if they stayed. This is likely a sign that we're going to see another scandal or two coming out of Groupon in the next few months, possibly one that tanks the company completely. Wall Street knows this, which is why the stock took such a beating today.
They talked a fair amount about it on Marketplace, a public radio show about business and economics. Still isn't exactly mainstream but its outside the tech news circle.
What I'm wondering: are any of Groupon's competitor's (AmazonLocal, LivingSocial, Google Offers, etc.) more likely to succeed? Or is the business model the biggest problem here?
I don't think the business model is quite as horrible as some make it out to be, but it certainly doesn't seem to warrant a $6+ billion valuation for Groupon and doesn't really bode well for some of its competitors. I see two major problems Groupon is facing:
1) Limited long-term market
A lot of companies have had negative or even disastrous results from using Groupon. It is clear that it isn't a good option for a lot of businesses, as it can be very costly and a lot of the customers don't return. I see two viable long-term markets for the sort of deals Groupon offers: 1) High-margin businesses where most of the expenses are related to advertising, and 2) brand new businesses with a big enough marketing budget to take a one-time hit to get their name out. This is still a pretty big potential market, but I don't think it is big enough.
2) Almost zero barrier to entry
Despite being called a "tech" company, Groupon appears to have very little interesting technology, and there is almost no barrier to becoming a competitor. More worrisome than the national competitors (ie, Google, Amazon, and LivingSocial) are the local competitors, such as TV stations, newspapers, universities, etc.. They already have established relationships with local businesses and almost certainly have lower sales costs, plus they often don't need the margins that Groupon does and can offer merchants better deals.
I see Groupon dying from fighting with a thousand other fish over a pond that is a lot smaller than originally thought. National competitors like Amazon and Google that can use other aspects of their business to lower acquisition costs and/or increase the revenue per deal might have a shot at doing well in the long term.
I can tell you one thing - as a Google shareholder, I'm really glad they ended up not spending $5 billion on Groupon.
> and there is almost no barrier to becoming a competitor
except user acquisition costs on both ends of the transcation, which are ridiculous. i doubt there is a single small business in the USA that hasn't had contact with GroupOn, or a single discount shopper who hasn't heard of them through their marketing.
I'm guessing the business model, or at least Groupon's implementation of it. The stories of companies who lost absurd amounts of money on Groupon deals and made none of it back are starting to pile up.
I wonder the same thing. I have friends working at LivingSocial, but also something about the whole business bothers me, so I'm never sure how to feel. I don't want their company to fail for their sake, but I don't really believe in it.
It's like watching a train-wreck in slow motion. It's a pity that this stock couldn't be shorted due to the lack of people willing to lend their holdings.
such statement is a bit far fetched. imho GRPN is no real tech company, and investors (traditional asset managers) know this.
on the other hand, if GRPN goes bust, the reputation of Accel, Andreessen Horowitz, Battery Ventures, DST and Kleiner Perkins, will be clearly damaged towards IPO investors.
If the last 5 years have taught us any lessons at all, it's that assuming traditional asset managers know anything--no matter how obvious--can get everyone in a terrible amount of trouble.
I think that at most it will make investors maybe think twice about the potential of a company. For the most part there shouldn't be any adverse affects on other companies. Especially the other ones that have gone IPO recently, they're all doing well.
Groupon is hardly even a tech company, and their business model is one that has been seriously criticized since the outset. There will be little collateral damage from their decline.
They are dotcom. They operate a website and they send their deals by email. The founder is young, does silly things (cat on head picture not something they do at Boeing or GE) and has been profiled in major media. They will be associated with tech whether deserved or not.
Defacto. If there was no connection nobody in our "business" would be talking about it.
Here's the recent IPO's. Splunk is tech. Nobody else has any connection and would never be mentioned as "dotcom" or tech.
There may be a world of folks who think Groupon = tech = uses email = young, but that definition presupposes failure for all tech companies because of their inherent silliness.
But online sales is made much more for books than pet supplies. The library of pet supplies is nothing compared to the vast variety of books. So selling books online with a good search and novel distribution model is what set Amazon apart from pets.com
Good question, and I think the answer has to be subjective.
My attempt at an answer: companies that either do things that couldn't be done before they were online because of the nature of the product/service, or where it couldn't be done before because the code has is complex.
So pets.com, really they were doing what shops had been doing for years, they just happened to do it online. Reddit on the other hand, there's not really an offline equivilent. Hipmunk, there's offline equivilents (travel agents) but the tech behind Hipmunk is what makes is a good company, not just "we've moved our travel agency online".
But yeah, no doubt there are YC companies that aren't necceasrily "tech companies", and on the other side there are companies not thought of as tech companies where technology plays a huge, huge role.
I had a door to door salesmen sell me a papa johns coupon book about 5 years ago. It cost 20$ and it probably saved me 10 times that over the next year. Honestly, I have trouble seeing Groupon as anything other that 'that' + email.
PS: I think people have been doing the same thing from at least the 1950's if not earlier.
Quick question: has YC funded any fabless semiconductor shops? (this isn't snark, I legitimately don't know). That has always been my representative sample of 'a real tech company.' I may be biased though, since I was brought up as an EE :).
I'd be very surprised, as the capital outlay to start even a small ASIC team is not small. A single simulator license costs considerably more than what the fine folks at YC invest in the companies they have under their wing.
The hardest part about fabless semiconductor startups is the lack of flexibility to pivot.
The time to design chips correctly is 10x-20x higher than doing the same in c++ (let alone a higher level language).
Example: in my previous company we needed to do some Jpeg decode in hardware. You have to buy a library for that. The library aint cheap so you have to evaluate vendors first, then work with lawyers to negotiate a licensing agreement. Then you design, implement, and test integration into your chip. All of this takes 2-3 man-months.
By contrast, we prototyped it in sw in an afternoon, and could be out the door with tests and production polish in less than a week.
You can use fpgas or low-NRE ASICs like eASIC to reduce the build costs, but engineering hardware is really slow.
Yeah but he doesn't have to do straight puts. He ca do a synthetic short. The June 9 puts are a dollar, as are the 11 call. So you sell the 11 call & buy the 9 put with the proceeds. Essentially you pay absolutely nothing. On June 12, if grpn stays below $9 you make the difference. If its between $9 and $11 you are ok as well. If its above $11, you cough up the difference. (Am NOT endorsing this trade - just pointing out that it does exist.)
The premium is showing there though. This trade isn't even profitable unless grpn goes below $9 (and even then earnings are only $9-grpn_price). If grpn goes above $11, you lose grpn_price - 11. In other words, this is like shorting, only with $2 less on the upside - and that's where the premium shows. It's cheaper than buying straight puts, but way riskier.
(Also, a lot of brokerages won't allow you to write naked calls)
To what degree were people predicting the fall of pets.com before it happened? Anyone remember? I think that's the key insight into how the fallout of a groupon meltdown would affect the rest of the industry.
That link lead me to a NY times article from december 2000 with the following paragraph describing the height of the 1999 bubble: "Even the most traditional brokers and investment banks set aside the notion that a company's stock price should reflect its profits and urged investors not to miss out on the gold rush."
Seems like any financial structure that isn't indefinitely sustainable gets described as a "Ponzi scheme" these days. What that post describes isn't a Ponzi scheme at all. The defining characteristic of such a thing is using the money from new investors to pay returns to old investors, thus making the investment appear legitimate. It's completely unrelated to Facebook advertising.
Maybe their business model is unsustainable, but its nothing like a Ponzi scheme.
I'm not even sure that their business model is unsustainable. The growth that would be necessary to justify their current valuation is probably unsustainable, mind you. But there's easily a good little business there. It just happens to not be worth 7 billion dollars :)
Same here. I was really skeptical of the claim that Facebook advertising isn't worth the money. I think it's far more likely that it is worth the money if you sell the right sort of thing, and this guy just moved in circles where people didn't sell things that advertised well on Facebook.
However, the "Ponzi" thing stuck out at me much harder.
Board Member/Director leaves... and what this signals:
[1] Employees Confused.
[2] Investors are going to really pissed off.
[3] Stock is most likely going to continue to fall. (The signalling from this step down is huge).
[4] It hints at possibility that the directors have had something to hide; something has been discovered; they have been secretly pushed out; or they have found out that something unethical has been going on in higher management and want to distance themselves from the company. Put another way, jumping out of a company when you aren't even pushed, when you are massively vested in it's success pretty much signals to everyone that Groupon is a sinking ship.
If they haven't filed bankruptcy by 2013 I'd be mightily impressed!
I can't wait to hear what Rocky Agrawal has to say about this.