Groupon now worth less than the $6 billion Google offered.(money.cnn.com)
money.cnn.com
Groupon now worth less than the $6 billion Google offered.
http://money.cnn.com/2012/06/04/technology/groupon-stock-6-billion/index.htm?source=yahoo_quote
11 comments
I'm pretty sure it was always worth less than that.
Indeed. I'd love to see it become more common for folks to draw a clearer distinction between "worth" and "valued at".
Perhaps those who "confuse" these two terms do so because they've taken an economics course and realize that there are no superior definitions of "worth" than "what someone values an item at".
http://en.wikipedia.org/wiki/Value_(economics)
http://en.wikipedia.org/wiki/Value_(economics)
Taking a single economics course is a sure way to pollute your thinking about what value is.
The idea of "worth" or "value" precedes economics as a discipline. Vulgarized economics might offer really weird and ideological versions of them, but it can't demand that everyone stop using them as normal people do.
Anyone can think of instances where someone at their company performs better than someone else but is not well-compensated, relatively-speaking. But no one seriously thinks that someone is inherently more valuable just because they're paid more.
If you think about it, anytime you buy a stock or engage in a market transaction you're rejecting the idea that the price of something is its value. If you exchange money for a good, what you're saying is that that good has more value to you than the price you're paying. The person you're bargaining with thinks the converse. Or if you're purchasing an equity, what you're effectively saying is that you have some non-public knowledge that that equity has more value than what the market price suggests (if you buy equities on a different basis, you should probably stop and move to index funds).
In Groupon's case, its econo-speak "value" came about because everyone assumed that they could gamble and win on the theory that there's someone who's making the same assumption that they could gamble and win on the same theory as them but who is slightly less savvy. Just because a bunch of people are collectively changing their minds about how many idiots are out there who are slightly less savvy than them doesn't change the actual value Groupon ever had.
The idea of "worth" or "value" precedes economics as a discipline. Vulgarized economics might offer really weird and ideological versions of them, but it can't demand that everyone stop using them as normal people do.
Anyone can think of instances where someone at their company performs better than someone else but is not well-compensated, relatively-speaking. But no one seriously thinks that someone is inherently more valuable just because they're paid more.
If you think about it, anytime you buy a stock or engage in a market transaction you're rejecting the idea that the price of something is its value. If you exchange money for a good, what you're saying is that that good has more value to you than the price you're paying. The person you're bargaining with thinks the converse. Or if you're purchasing an equity, what you're effectively saying is that you have some non-public knowledge that that equity has more value than what the market price suggests (if you buy equities on a different basis, you should probably stop and move to index funds).
In Groupon's case, its econo-speak "value" came about because everyone assumed that they could gamble and win on the theory that there's someone who's making the same assumption that they could gamble and win on the same theory as them but who is slightly less savvy. Just because a bunch of people are collectively changing their minds about how many idiots are out there who are slightly less savvy than them doesn't change the actual value Groupon ever had.
The micro-level counter-examples you provide for macro-level mechanisms simply don't work.
If you consider your first example at a market level, people that are better compensated are more valuable—because they create more value (the discussion is—of course—not around one's value as a human being). The only reason for imperfection in this regard is market friction—which there is a lot of, in every market. But the market value tends very quickly towards the real value if the market is liquid enough.
In a liquid equity market (stock exchanges for example), the price of the stock you buy is its current value. However, you are making a bet on the future value gains of the company. Buying stock for its current value is investing; anything else is speculation.
If you consider your first example at a market level, people that are better compensated are more valuable—because they create more value (the discussion is—of course—not around one's value as a human being). The only reason for imperfection in this regard is market friction—which there is a lot of, in every market. But the market value tends very quickly towards the real value if the market is liquid enough.
In a liquid equity market (stock exchanges for example), the price of the stock you buy is its current value. However, you are making a bet on the future value gains of the company. Buying stock for its current value is investing; anything else is speculation.
That is a very practical definition for economic models but that doesn't make it complete. Your link says value within a market, and a single offer for a company by Google does not automatically qualify as a market and therefor determine value. If it did, I could pay you 1 billion dollars for a rock and it would be "worth" 1 billion dollars. I prefer to think of it as, given imperfect information and an inability to predict the future, market value trends towards true value, where true value is a fuzzy subjective set of ideals held by individuals and society.
Just because one person values something at a number doesn't mean anyone else (or enough other people) do. The price of their shares tell you the "Current Market Value," but they don't tell you what it is worth in the long term.
Things are only worth what the next person is willing to pay for them, not what the last person actually paid. People buying the Groupon IPO were mostly going with the "greater fool" theory of investing. A money losing company with lots of accounting issues is not something that generally just goes up and up in value.
Things are only worth what the next person is willing to pay for them, not what the last person actually paid. People buying the Groupon IPO were mostly going with the "greater fool" theory of investing. A money losing company with lots of accounting issues is not something that generally just goes up and up in value.
>> they don't tell you what it is worth in the long term
This reminds me of the Keynes quote: "The long run is a misleading guide to current affairs. In the long run we are all dead."
More on topic, the long run as an abstraction is limited in its utility for investors. This mostly because investors (like gamblers at a roulette wheel) have to place their bets while the wheel is spinning. Without taking a position on GRPN, I'd say that the "long run" verdict is hardly in at this point.
This reminds me of the Keynes quote: "The long run is a misleading guide to current affairs. In the long run we are all dead."
More on topic, the long run as an abstraction is limited in its utility for investors. This mostly because investors (like gamblers at a roulette wheel) have to place their bets while the wheel is spinning. Without taking a position on GRPN, I'd say that the "long run" verdict is hardly in at this point.
Alternatively, consider this Wikipedia page: http://en.wikipedia.org/wiki/Theory_of_value_(economics)
As the old saying goes, a little knowledge (e.g., an introductory course) can be a dangerous thing.
As the old saying goes, a little knowledge (e.g., an introductory course) can be a dangerous thing.
Perhaps we could draw it as the difference between "would pay" and "paid".
You can put a price on something, but until someone has paid it, it seems difficult to argue that the thing is "worth" your price... to anyone. But people routinely argue this, and others believe them.
You can put a price on something, but until someone has paid it, it seems difficult to argue that the thing is "worth" your price... to anyone. But people routinely argue this, and others believe them.
But that is what the stock market is: A constant and immediate recalculation of worth.
To take another example: Facebook obviously, at the time of IPO, was not worth what it sellers hoped it would be. At some point in the future it will be worth much more than it is today, and at some other point it will be worth nothing. Today, the agreed worth/value of one FB share is $27.
To take another example: Facebook obviously, at the time of IPO, was not worth what it sellers hoped it would be. At some point in the future it will be worth much more than it is today, and at some other point it will be worth nothing. Today, the agreed worth/value of one FB share is $27.
Anything is only worth what someone will pay for it. There's no other meaningful definition. If Google was willing to buy the whole thing for 6 billion, it was worth 6 billion. It only gets questionable when you start buying and selling shares rather than the whole thing.
The other meaningful definition of worth is the inherent value of the object. A ION bracelet or Rawlings Power Bracelet may be sold for $30. But the plastic or metal in the item is actually worth $2. Or the fact that someone now believes they have better balance may be worth $2,000 to them, but the metal and plastic costs $2.
There's no such thing as "inherent value". That's the point.
Now I understand, Because you say it doesn't exist then I shouldn't talk about it.
If you think there's a meaning to the phrase "inherent value", try to define it instead of being petulant. Nothing has value without some customer who has a demand for it, which is why the concept of inherent value is meaningless.
If something was only worth the cost of the materials that went into it--then what determines that cost? Even steel and oil have value that depends on customer demand rather than any sort of inherent value. And if that was all it was worth, why would you waste time and effort turning steel into a steel bracelet, or a steel ship, when the end product wasn't actually worth more than the materials that went into it? You'd waste energy and human effort without producing any value. You'd be richer just holding onto the raw steel itself.
If something was only worth the cost of the materials that went into it--then what determines that cost? Even steel and oil have value that depends on customer demand rather than any sort of inherent value. And if that was all it was worth, why would you waste time and effort turning steel into a steel bracelet, or a steel ship, when the end product wasn't actually worth more than the materials that went into it? You'd waste energy and human effort without producing any value. You'd be richer just holding onto the raw steel itself.
No, when Google offered them $6 billion, it was worth $6 billion to Google (unless Google was lying).
At the risk of being slightly off-topic, I had a recent personal experience with a groupon clone (lets call it deals dot com dot au, or "the site" for the sake of this story) which might be of interest.
I purchased four service-based "deals" through deals the site. It eventuated that the business advertising the deals did not exist, had never existed, and was consequently unable to provide the services offered.
I was disappointed and contacted the site asking for a refund. They brusquely rebuffed my request for a refund and instead offered a "site credit" for future deals. I politely indicated that I didn't want a site credit and would prefer my money back. They insisted that their policy was to give only credits.
Fortunately I work in commercial law and could direct them to the relevant provisions of Australian consumer protection law which they were breaching. They quickly refunded my money.
Lessons:
1. These deals businesses are very reliant on doing extensive due diligence on their clients, and can easily be ripped off by an unscrupulous merchant. In my case they ate a loss of 150% on the value of deals purchased (full refund to me, 50% share to the merchant).
2. In order to minimise their losses this site was willing to break the law and outright deceive its customers about their rights. If I were more pugnacious I could have caused them some trouble. Unfortunately most of the customers they try to rip off probably aren't commercial lawyers and they get away with it.
My lasting impression: very difficult industry to turn a profit in, strong incentive to scummy business practices and the attendant legal risk those practices bring. I wouldn't invest.
I purchased four service-based "deals" through deals the site. It eventuated that the business advertising the deals did not exist, had never existed, and was consequently unable to provide the services offered.
I was disappointed and contacted the site asking for a refund. They brusquely rebuffed my request for a refund and instead offered a "site credit" for future deals. I politely indicated that I didn't want a site credit and would prefer my money back. They insisted that their policy was to give only credits.
Fortunately I work in commercial law and could direct them to the relevant provisions of Australian consumer protection law which they were breaching. They quickly refunded my money.
Lessons:
1. These deals businesses are very reliant on doing extensive due diligence on their clients, and can easily be ripped off by an unscrupulous merchant. In my case they ate a loss of 150% on the value of deals purchased (full refund to me, 50% share to the merchant).
2. In order to minimise their losses this site was willing to break the law and outright deceive its customers about their rights. If I were more pugnacious I could have caused them some trouble. Unfortunately most of the customers they try to rip off probably aren't commercial lawyers and they get away with it.
My lasting impression: very difficult industry to turn a profit in, strong incentive to scummy business practices and the attendant legal risk those practices bring. I wouldn't invest.
> very difficult industry to turn a profit in
1. The coupons usually can be redeemed for up to 6 months in these sites and the money is paid to the company only when the coupon is redeemed, so let's assume a 3 month average float time. With clever investing you could do much in 3 months. 2. As with gift cards, I assume, quite a significant percentage of those coupons are never actually redeemed.
1. The coupons usually can be redeemed for up to 6 months in these sites and the money is paid to the company only when the coupon is redeemed, so let's assume a 3 month average float time. With clever investing you could do much in 3 months. 2. As with gift cards, I assume, quite a significant percentage of those coupons are never actually redeemed.
Worth noting that the Google deal had a big asterisk tied to it. Groupon was burning (and is still) through tons of money. There was a very good chance that the deal could have been turned down due to an anit-trust case or held up in court for 18+ months. Both situations would have crippled Groupon. Going public was just as big a risk as accepting the $6B, the former at least got the early shareholders a pop on their money for 4x what Google was going to pay.
I am still bullish that Groupon can become a sustainable business. They are a brand that the local commerce market recognizes, and with that they can package plenty of other services such a POS systems to diversify their income away from just deals.
I am still bullish that Groupon can become a sustainable business. They are a brand that the local commerce market recognizes, and with that they can package plenty of other services such a POS systems to diversify their income away from just deals.
Brand value is based on reputation. At a bad enough reputation, brands are abandoned. ClearWire and USWest are good examples. If Groupon's reputation with merchants is as bad as rumored, they have no basis for expansion based on brand. They do have the sales force, but if I'm a local business and a salesman screwed me on a daily deal, I won't take his calls for a POS system either.
Huh, but I thought Groupon had finally had the ship turned in the right direction and was profitable?
http://www.businessinsider.com/wait-wasnt-everyone-just-sayi...
I don't understand much about investment markets, but shouldn't that raise investor confidence or is there something else going on?
http://www.businessinsider.com/wait-wasnt-everyone-just-sayi...
I don't understand much about investment markets, but shouldn't that raise investor confidence or is there something else going on?
I imagine Groupon is like Amazon - providing an easily copied service but having some early mover advantages. And like Amazon instead of taking profits they are investing in growth.
Like let's say Amazon with their current trends sees $600 million profit next quarter. Instead of taking that $1 billion profit they plow it into advertising and loss leading promotions until the projected profit is down to $100-150 million. This gives them bigger revenue growth, more users, etc. while still turning a modest profit which let's the execs hit their bonuses.
And just like Amazon the short term profits above all else mentality of investors doesn't get excited about this.
Like let's say Amazon with their current trends sees $600 million profit next quarter. Instead of taking that $1 billion profit they plow it into advertising and loss leading promotions until the projected profit is down to $100-150 million. This gives them bigger revenue growth, more users, etc. while still turning a modest profit which let's the execs hit their bonuses.
And just like Amazon the short term profits above all else mentality of investors doesn't get excited about this.
As someone pointed out elsewhere on HN today, it's one thing to have a profitable core business, and reinvest large portions of it in growth (resulting in short-term losses.) Groupon's problem is that its core business may not be profitable at all, because it's costing them more to secure new business than they make off those customers.
Where have you seen that it is costing them more to secure new business than they make off their customers? I'm fairly confident that isn't true.
Groupon's core problem is that the lifetime values of their stakeholders, both the merchants and the customers, decline quickly. If you compare the customer acquisition cost to the current lifetime value of a customer, it seems profitable since the company is growing so fast that most of its customers are new to Groupon and are still high-value. However, research on the earliest cohorts of users shows that the older the customer is, the less profitable they are, indicating that once the growth is tapped out the customer base will rapidly decline in value.
There's lots of analysis out there that use the numbers directly from the S-1 to highlight this fact. The crux of the problem is that Groupon needs to find a SUSTAINABLE way to deliver value to businesses and individuals and this doesn't seem to be the case right now.
There's lots of analysis out there that use the numbers directly from the S-1 to highlight this fact. The crux of the problem is that Groupon needs to find a SUSTAINABLE way to deliver value to businesses and individuals and this doesn't seem to be the case right now.
I think one of Groupon's big mistakes is how they price everything. Based on what I've read they require businesses to cut the price of whatever they're selling by 50%, and then Groupon takes 50% of the purchase price. That's an absurd price cut for the businesses for what's really an email campaign ... something a business could technically do for free or cheap if they can convince their existing customers to sign up for deals, and leverage social channels to grow beyond existing customers. Obviously, part of what Groupon pitches is that they'll bring you new customers with the goal of converting them to recurring customers, but I think the pricing is all wrong.
Retailers should be allowed to cut their product by a less severe percentage, and Groupon's cut should be a fraction of what they take today. Maybe 10-15%.
Retailers should be allowed to cut their product by a less severe percentage, and Groupon's cut should be a fraction of what they take today. Maybe 10-15%.
"That's an absurd price cut"
Groupon is advertising and needs to be evaluated as advertising not as a price cut.
"for the businesses for what's really an email campaign ... something a business could technically do for free or cheap"
No that's not a real option that is either free or cheap anymore then you can replace traditional advertising by having the owner's family pass out fliers and/or stand around with a sandwich board.
Groupon is advertising and needs to be evaluated as advertising not as a price cut.
"for the businesses for what's really an email campaign ... something a business could technically do for free or cheap"
No that's not a real option that is either free or cheap anymore then you can replace traditional advertising by having the owner's family pass out fliers and/or stand around with a sandwich board.
There was lots of discussion about this last year, particularly that as they exist in a market longer, they have to spend more to find new customers (because they start exhausting the pool of businesses willing to "test" their service.)
http://betabeat.com/2011/06/groupons-business-is-decaying-in...
Is it true? I don't know (hence my use of the word "may"), but it's certainly a concern for Groupon and other local business services that have to spend a lot of sales people to target relatively small business customers.
http://betabeat.com/2011/06/groupons-business-is-decaying-in...
Is it true? I don't know (hence my use of the word "may"), but it's certainly a concern for Groupon and other local business services that have to spend a lot of sales people to target relatively small business customers.
Maybe they righted the ship and now everyone sees their sustainable profit is below what they thought it would be.
The post-IPO lockup period ended today. Insiders (private equity, founders) typically have to wait 6 months after an IPO before they can sell their shares.
In GRPN's case, you can see on http://finance.yahoo.com/q/mh?s=GRPN that 45% of their shares are held by insiders. Their sales are probably causing a temporary supply/demand imbalance.
EDIT: sorry, that was Friday (http://dealbook.nytimes.com/2012/06/01/as-lock-up-expires-gr...) but the effect of lockup expiration lasts longer than one day.
In GRPN's case, you can see on http://finance.yahoo.com/q/mh?s=GRPN that 45% of their shares are held by insiders. Their sales are probably causing a temporary supply/demand imbalance.
EDIT: sorry, that was Friday (http://dealbook.nytimes.com/2012/06/01/as-lock-up-expires-gr...) but the effect of lockup expiration lasts longer than one day.
You would think just about all insiders would want to cash out. I just can't see how Groupon right now would at all be the best place to have your money tied up.
Does anybody know if the famous Google "offer" was subject to due diligence?
I'm speculating here: I doubt that the Google corporate dev team, after looking at Groupon's books (post NDA), would of kept the $6bn price tag, and if they did it would have been subject to considerable reps & warranties.
I'm speculating here: I doubt that the Google corporate dev team, after looking at Groupon's books (post NDA), would of kept the $6bn price tag, and if they did it would have been subject to considerable reps & warranties.
I don't think this means much anyway. If you're buying Groupon stock, you're probably going long anyway. Every company has their low points.
A = the lowest value that someone is willing to sell a share at right now, multiplied by the number of shares that exist.
B = the sum over all shares of the price that each share's owner is willing to sell it for right now.
B > A, by definition. This is why buyouts typically happen at a premium above the share price, because a flat out purchase of shares on the open market would send the price through the roof. So the buyout price is set at a level where enough people feel like they're getting a good deal to let the deal can go through without stirring up too much shit.
tl;dr market cap doesn't mean very much, and shouldn't be compared to a buyout offer, at least without some adjustment.
B = the sum over all shares of the price that each share's owner is willing to sell it for right now.
B > A, by definition. This is why buyouts typically happen at a premium above the share price, because a flat out purchase of shares on the open market would send the price through the roof. So the buyout price is set at a level where enough people feel like they're getting a good deal to let the deal can go through without stirring up too much shit.
tl;dr market cap doesn't mean very much, and shouldn't be compared to a buyout offer, at least without some adjustment.
Sooner or later there aren't going to be any small businesses left to dupe. Weren't they sending salespeople to actual storefronts to get people to do a groupon? I imagine they are going to act more and more desperate as time goes along. This is not sustainable.
Time to buy shares. And sell 2 years from now.
Looking at the shenanigans around raising a billion dollars and then giving most of that money directly to a few of the insiders, certainly suggested to me and others that Groupon turned down the $6B bid by Google not because they didn't think the company was worth it, but rather that the rules in place regarding selling the company would not have compensated those same insiders the way they wanted to be compensated. Between the payoff and the fact that most of those preferential clauses, and common vs preferred shares, vanish once the company IPOs, a simple explanation of the sequence of events was that they were a way to structure the payout.
That said, Google would have brought a tremendous chunk of value to the Groupon party. They have lots of infrastructure at scale to handle distribution, a huge inventory of businesses who advertise with them, and a world wide sales team. Given that a lot of Groupon's early issues stemmed in part from the way they compensated their sales team, it seems that Google would have had the option of basically firing everyone to reset all those relationships, and then launching with a completely different cost structure.
But we cannot know and speculation, well its fun and all but what do we learn from it?