> 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).
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).