1) Yes, price does not necessarily mean value. But that is a really philosophical tangent (What is "value", bla bla bla etc.) that is pretty irrelevant. For all intents and purposes the two are interchangeable on the market. For all intents and purposes, the value of something economically is the highest price someone will pay for it.
2) >Groupon is Groupon. Groupon is not Silicon Valley, Groupon is not Amazon, Groupon does not represent any other company/industry other than itself. Do not go the Amazon, Webvan, etc. route, because mixing stories does not make the story any more right.
This argument is true in a tautological sense, but doesn't really provide a reason against comparing Groupon to other companies when valuing it. Yes, the fundamentals of Groupon matter, but growth in the abstract (not just YOY revenue growth) is difficult to evaluate. People will turn to other ways to evaluate companies, typically by comparing a company to other companies in the same sector. To give you an extreme example of this principle, VCs really don't care about an early startup's fundamentals. They'll look at the strength of the team and they'll evaluate (in a hand-wavy fashion, I acknowledge) the idea of the startup, and the reason they'll value, say, a YC startup with 3 co-founders at $6 million despite no revenue is because in their experience, they've seen companies with strong technical+operational teams return 100x. Yes, this example is not directly applicable to Groupon, since they did have revenue numbers to look at, but no doubt some people evaluated Groupon based on the idea of ecommerce growth.
I never thought Groupon was a good stock to buy. But I remember at the time that even though I saw that the fundamentals were weak, I personally could not be sure of myself because I saw my mother and many of her female friends (also mothers) buy tons and tons of Groupons. Hindsight is 20/20.
3) That is a terrible idea. How do you define "fairness?" Again, given that the inherent definition of "value" is essentially (in a market economy) the highest price someone is willing to pay, I don't see any situation in which a company's IPO would be canceled. In fact, this appears to be a de-facto price ceiling since you are essentially capping the valuation at whatever the SEC/auditor determines is the fair valuation, regardless of what people are willing to pay, something you will get virtually no economist to agree to. Last I heard, the SEC is not in the business of setting IPO prices (yes, you might argue that they're not technically setting the price, but the end result is that they are setting the price).
> the fundamentals of Groupon matter, but growth in the abstract (not just YOY revenue growth) is difficult to evaluate
Yes, forecasting growth is tough BUT if you have a price to start from, you can very easily back-solve the growth rate of a companies revenues, cash flow, etc. You don't have to be a genius to extrapolate that at a +$13bn equity valuation Groupon needed to achieve spectacular growth and cashflow generation over that next 5-7 years. Once you observe the implied growth rates, margins and cash-flow needed to be achieved one can genuinely analyse and criticise a valuation.
> That is a terrible idea. How do you define "fairness?" Again, given that the inherent definition of "value" is essentially (in a market economy)...
I don't think you understood my point. I'm not talking about something being fair (like you refer "fairness") or not, I'm talking about a Fairness Opinion or FO. An FO is an exercise that investment banks, auditors, consultants and other qualified parties, do on a daily basis. In the corporate world, specially with public companies, when a tender offer is received or presented an "independent" party provides a FO to inform investors and other stakeholders (primarily the board), that the offer is priced as expected or it is too high or too low. Issuing an FO is one of the most market friendly, pro free-market, instruments/exercises out there, instead of just dumping shares at a dubious valuation while deep-throating "unqualified" investors.
>But I remember at the time that even though I saw that the fundamentals were weak, I personally could not be sure of myself because I saw my mother and many of her female friends (also mothers) buy tons and tons of Groupons. Hindsight is 20/20.
I'm not saying that Groupon is not a viable business. I believe the contrary, I think there is a good business somewhere. But a good businesses can be under- and over-valued. The fact that people use Groupon doesn't make a ridiculous valuation justifiable.
> Again, given that the inherent definition of "value" is essentially (in a market economy) the highest price someone is willing to pay...
What you refer to here is the Price you are willing to pay; Value is a different thing. Any serious valuation exercise uses a discounted cash flow model driven by a solid operational model. Any other methodologies are simply hocus pocus. I suggest you read "The Intelligent Investor" by Benjamin Graham. It was published over 60 years ago, but it is as useful today as it was back then. This book distills value investing from speculation. Let me just finish by saying that the recent financial crisis, specially that of the US housing was due to the decoupling of prices and value; understanding both will be of value (no pun intended).
2) >Groupon is Groupon. Groupon is not Silicon Valley, Groupon is not Amazon, Groupon does not represent any other company/industry other than itself. Do not go the Amazon, Webvan, etc. route, because mixing stories does not make the story any more right.
This argument is true in a tautological sense, but doesn't really provide a reason against comparing Groupon to other companies when valuing it. Yes, the fundamentals of Groupon matter, but growth in the abstract (not just YOY revenue growth) is difficult to evaluate. People will turn to other ways to evaluate companies, typically by comparing a company to other companies in the same sector. To give you an extreme example of this principle, VCs really don't care about an early startup's fundamentals. They'll look at the strength of the team and they'll evaluate (in a hand-wavy fashion, I acknowledge) the idea of the startup, and the reason they'll value, say, a YC startup with 3 co-founders at $6 million despite no revenue is because in their experience, they've seen companies with strong technical+operational teams return 100x. Yes, this example is not directly applicable to Groupon, since they did have revenue numbers to look at, but no doubt some people evaluated Groupon based on the idea of ecommerce growth.
I never thought Groupon was a good stock to buy. But I remember at the time that even though I saw that the fundamentals were weak, I personally could not be sure of myself because I saw my mother and many of her female friends (also mothers) buy tons and tons of Groupons. Hindsight is 20/20.
3) That is a terrible idea. How do you define "fairness?" Again, given that the inherent definition of "value" is essentially (in a market economy) the highest price someone is willing to pay, I don't see any situation in which a company's IPO would be canceled. In fact, this appears to be a de-facto price ceiling since you are essentially capping the valuation at whatever the SEC/auditor determines is the fair valuation, regardless of what people are willing to pay, something you will get virtually no economist to agree to. Last I heard, the SEC is not in the business of setting IPO prices (yes, you might argue that they're not technically setting the price, but the end result is that they are setting the price).