GRPN - Groupon

[premfan]

I know know value investing board. What i'm i thinking?!  So we know all the problems with groupon and 80-90 percent drop since IPO. Lets look at the actual business economics.  After looking at the float/moat presentation i have a bit more clarity with it.

Groupon Goods=  Its the same business model as overstock.   The insane thing about it after one year in operation its rate run is about 1.5 billion. Thats impressive growth although its a low margin business. This shows the power of leveraging the groupon brand.

Daily Deal=  The daily deal is a high margin business where essentially it gives groupon "float" by getting an advance from customers ( buying the groupon deal). The float is costless cause they are the middlemen in the deal making process. They get a 50 percent split of the total deal. Is the float permanent? I would say yes unless all the customers demand a refund.

Negative working capital which means everything is financed by accounts payable and accured expenses.

Conclusion
I dont have the time to give more of a detail look into groupon, but bascially they create float to finance there business operations. The mistake groupon made is that they tried to grow to fast which elevated there sg & a. They havent reached critical mass yet but they will. Groupon is a innovative company that will create more businesses like groupon goods by leveraging there brand name. I think  groupon has zero chance of going bankrupt cause it finances there business with float not LTD.

Disclosure: long grpn ( its up 20 + percent today due to google takeover rumors. Its all noise )

[Olmsted]

The "float" from daily deals cuts both ways.  It's a blessing if that segment grows or stays the same, it's a big problem if that segment shows declining volume.

[premfan]

Right float does cut both ways. Groupon adds massive value to its merchants cause its the best way period from a ROI metric to bring customers in. Nothing else is even in the same arena except word of mouth referrals.  If there was a better way to get customers in believe me they wont be in business. Bringing new customers in is the most important thing by far for growing a business.  There are the best tool for bringing new customers in period in any type of advertising.

[siddharth18]

I feel like I missed the boat on GRPN and GMCR. Both stocks that where overvalued once-upon-a-time. Then fell hard; very hard in fact.

At some point each company is worth SOMETHING even when they happen to be universally hated.

[ItsAValueTrap]

Aren't Groupon and GMCR very obvious shorts?

*I am short GMCR.  Both stocks have very high short interest.  The borrow on Groupon is ridiculous so I'm not that interested in shorting it.

At some point each company is worth SOMETHING even when they happen to be universally hated.

Most companies on the stock market eventually go bankrupt...

[DCG]

I wouldn't say their float (if you want to call it that) is priceless. They're paying their sales people a lot of cash to get these deals.

[premfan]

I wouldn't say their float (if you want to call it that) is priceless. They're paying their sales people a lot of cash to get these deals.

Hey great point.  Groupon is slowly starting to cut down there sales team due to automation of the deal making process. Groupon has reached a point where merchants know what they offer and they know it works due to testimonals in there field ( social proof). Since merchants know its the best way to bring customers in they have social proof which creates a sense of trust. There is less "selling" to create the deal. Merchants are seeking groupon and its not a demand problem its mostly a supply problem. They are still not in all areas of the market. The more automation of the deal making process the greater scale they can reach with less employees. If they can double or triple the merchants per account manager then that small change creates a "tipping point". Where the SG & A gets lower and they eventually reach all or most markets which creates HUGE increases in gross profit.  The mistake they made is they increased there workforce without the proper infrastructure in place to maximize there productivity per deal. So tipping point in overview for groupon is

Automation of deal process + more markets= less employees and HUGE increase in gross profit due to lowered SG & A per percent of revenue. 

[siddharth18]

Aren't Groupon and GMCR very obvious shorts?

*I am short GMCR.  Both stocks have very high short interest.  The borrow on Groupon is ridiculous so I'm not that interested in shorting it.

At some point each company is worth SOMETHING even when they happen to be universally hated.

Most companies on the stock market eventually go bankrupt...

In hindsight, GMCR was a decent value at $18 a share...

[writser]

Was it a decent price because the stock doubled up in two months? Or was it decent value because the company was unreasonably valued? I'm not sure about the latter one. I'm also not sure about the integrity of management.

[premfan]

Was it a decent price because the stock doubled up in two months? Or was it decent value because the company was unreasonably valued? I'm not sure about the latter one. I'm also not sure about the integrity of management.

I think a better way to think of it is the market in the short term is a voting machine. The market HATES groupon and has already cased there ballot. Nothing is going to change that perception except sustainability. Everything is not sustainable. Until it eventually is or dies. So the question is what can happen to make groupon unsustainable and die? Please someone answer this and i can change my thesis.  The market is betting groupon wont be around in 2-3 years. I'm willing to take that bet based upon  my qualititave framework.