Groupon Is a Straight-Up Ponzi Scheme

Quote from stock777:

I dont use groupon, prefer to find my own bargains for the limited amount of shit that I really NEED.

Aren't most of groupons scams for grossly overpriced services and eateries? I mean the stuff thats worth next to nothing , like tanning salons, yoga halls, beauty parlors, crap like that.
More...

+1 ....... Current Groupon deals in Vancouver.

  • The Hotel at River Rock – Richmond
    C$139 for One-Night Stay Package for Two Including Dining & Casino Credits (Up to $284 Value)
  • Vancouver Home and Design Show – Vancouver Convention Centre
    C$15 for One-Day Home-Design Show Visit for Two (Up to $30 Value)
  • Exclusive Mobile Detailing – Burnaby
    Mini, Medium, or Complete Detail
  • Footopia – Downtown Vancouver
    C$49 for Footbath, Reflexology Massage, and Diode-Laser Therapy ($110 Value)
  • Hart House Restaurant – Deer Lake
    C$20 for C$40 Worth of Upscale Cuisine and Drinks
  • The Palms Casino Resort – Las Vegas, Nevada
    One-Night Stay for Two in a Fantasy Suite or Two-Night Stays for Two in a Superior Room. Combine Up to Six Nights.
  • Chocolaterie de la Nouvelle France – Vancouver
    C$32 for Three-Course Chocolate Tasting for Two (Up to $64 Value)
 
You guys either do not know what a Ponzi scheme is or simply do not understand the coupon business model.

Groupon, as with most of these types of companies actually do have a product or service they are selling. They are exchanging a tangible something (product or service that people want) for money. There is absolutely nothing Ponzi about this. They are not using the deposits of one customer to pay out the previous deposits of another customer.

Even if there was some type of fraud (which there is not), it still is not a Ponzi scheme.

Let me give you a little explanation how this business works. A business, let’s say a restaurant normally pays $1000 to advertize in the newspaper or in a magazine or on TV or somewhere else and they calculate that based on that advertizing, they get 10 new customers, thus costing them $100 per customer.

With these sites such as Groupon, instead of paying money outright for advertising, they simply subsidize their product (in this case restaurant food) to get the customers. So they will discount a meal to 50% (Customer pays 50% of the original price, but Groupon et all get roughly half of that, so that the business will actually receive only 25% of what they normally get.) Even though the restaurant only gets 25% in hand, they are guaranteed to get a customer to fill seats, hopefully coming back to pay full price. This is in contrast with traditional advertising that does not guarantee anything and makes it difficult to track its effectiveness.

Consider also that not 100% of people who buy the coupons will use it by the expiry date, pushing up the margins somewhat, as the payment is made at time of purchase of the said coupon. There are other factors involved, but you should get the point.

Groupon kind of pioneered the business model, but others have copied it successfully. Two of my childhood friends run another coupon site and have done very well (they are one of the big ones).

Please try to avoid ignorant and unfounded claims. The top companies in this space have pristine balance sheets and income statements and are practically cash cows.

That being said, if any of these actually IPO, I am not imlying this would necessarily be a good investment. One needs to take valuation and many factors into consideration.
 
1. Groupon does not have a pristine balance sheet.

2. Groupon was overstating their revenue by including the entire coupon and not subtracting the merchant's cut. Initially reported 1.5 billion in revenue, actual revenue was $688 million.

3. COO jumped ship and went back to Google. This is the 2nd COO to jump ship in the last six months.

4. Groupon is not a cash cow. They lost $223 million in the first half of this year. Their working capital for the first half of this year was NEGATIVE $305 MILLION.

5. While it still isn't entirely accurate, people referred to groupon as a ponzi scheme, because the early investors/founders used their latest financing round to cash themselves out. ($946 million)

Quote from Churchill:
Please try to avoid ignorant and unfounded claims. The top companies in this space have pristine balance sheets and income statements and are practically cash cows.
[/B]
More...

You might want to take some of your own advice.
 
Quote from Churchill:


Let me give you a little explanation how this business works. A business, let’s say a restaurant normally pays $1000 to advertize in the newspaper or in a magazine or on TV or somewhere else and they calculate that based on that advertizing, they get 10 new customers, thus costing them $100 per customer.
More...

This is a different type of customer that you get from Groupon. It's one thing to pay for exposure. It's another to bring in bargain hunters that only come to your store when you subsidize your product/service.

The company's business plan was flawed from the start, they are just catching the social media hype train. More than likely, their soon to come demise will bust the social media craze.
 
Should've just posted the latest article.

http://www.usatoday.com/money/companies/story/2011-09-26/groupon-IPO-in-trouble/50548532/1

Groupon's IPO prospect loses luster as COO leaves

Groupon's gold-paved path to a public stock offering is now off track.

Chicago-based Groupon, which created the deals craze, on Friday said Chief Operating Officer Margo Georgiadis is returning to former employer Google. The blow came as Groupon cut in half its previously stated revenue.

Groupon CEO Andrew Mason wrote on the company blog, "Sales, channels, international, and marketing will now report directly to me." He gave no reason for the departure. Georgiadis will become president of Americas at Google.

Groupon shaved its revenue for the first half of this year to $688 million, from $1.5 billion, in an acknowledgment on Friday of accounting missteps with the Securities and Exchange Commission. Groupon had reported the entire deal coupon as revenue instead of subtracting the merchant's cut. Groupon says in SEC filings that revenue minus merchant fees was always the metric to consider.

The double whammy is the latest dose of bad news for what was expected to be one of the hottest initial public offering contenders of the year.

Georgiadis is the second COO to exit in six months. Rob Solomon left after starting in early 2010. Georgiadis joined shortly after the company filed to go public in a bid to raise $750 million.

She held 1.1 million in restricted stock options, according to the SEC. A return to Google today would certainly not match such financial reward. Google declined to comment.

"A COO leaving with all those shares? There's no question that this raises questions," says PrivCo analyst Sam Hamadeh.

Groupon's woes are mounting. The start-up recently canceled its IPO roadshow. And it is losing boatloads of cash — $223 million in the first half of 2011 alone, according to the filings — as it faces a crush of rivals, including deep-pocketed Google.

The deals giant is also operating without cash. Groupon reported working capital of negative $305 million in the first half of 2011, SEC papers showed. Worse, company executives are cashing out from the $1.1 billion that venture firms invested.

"You see insiders trying to dump the shares," Hamadeh says.

So far, some $946 million has been extracted by insiders who cashed out, filings said. Co-founder Eric Lefkofsky took $319 million from the cash-strapped Groupon, according to the SEC documents.

Groupon, in an SEC-mandated quiet period, declined to comment.
More...
 
Quote from Churchill:

The top companies in this space have pristine balance sheets and income statements and are practically cash cows.

That being said, if any of these actually IPO, I am not imlying this would necessarily be a good investment.
More...

Forgive me because I am the ignorant thread starter, but could you explain it to me how a company with pristine balance sheet and being a practically cash cow is NOT a good investment???

Thanks in advance.

P.S.: You did read the post below yours stating the misstated balance sheets??? Not to mention being a cash cow with not making profits... So you might want to check your "facts" first, THEN we can talk about definitions...

P.S.S.: Here is the reason it was called a Ponzi, although you are accidentally right and it isn't a Ponzi in the true sense of the word:

"Worse, company executives are cashing out from the $1.1 billion that venture firms invested.So far, some $946 million has been extracted by insiders who cashed out, filings said."

So 90% of the capital was taken away by the funders and early birds. Just like in a Ponzi. :)
 
To think they turned down 6 Bil from Google last year.. The very definition of Hubris.. Reminds me of the Yahoo/Microsoft thing. So painfully clear looking in from the outside..
 
Quote from Churchill:

You guys either do not know what a Ponzi scheme is or simply do not understand the coupon business model.

Groupon, as with most of these types of companies actually do have a product or service they are selling. They are exchanging a tangible something (product or service that people want) for money. There is absolutely nothing Ponzi about this. They are not using the deposits of one customer to pay out the previous deposits of another customer.

Even if there was some type of fraud (which there is not), it still is not a Ponzi scheme.

Let me give you a little explanation how this business works. A business, let’s say a restaurant normally pays $1000 to advertize in the newspaper or in a magazine or on TV or somewhere else and they calculate that based on that advertizing, they get 10 new customers, thus costing them $100 per customer.

With these sites such as Groupon, instead of paying money outright for advertising, they simply subsidize their product (in this case restaurant food) to get the customers. So they will discount a meal to 50% (Customer pays 50% of the original price, but Groupon et all get roughly half of that, so that the business will actually receive only 25% of what they normally get.) Even though the restaurant only gets 25% in hand, they are guaranteed to get a customer to fill seats, hopefully coming back to pay full price. This is in contrast with traditional advertising that does not guarantee anything and makes it difficult to track its effectiveness.

Consider also that not 100% of people who buy the coupons will use it by the expiry date, pushing up the margins somewhat, as the payment is made at time of purchase of the said coupon. There are other factors involved, but you should get the point.

Groupon kind of pioneered the business model, but others have copied it successfully. Two of my childhood friends run another coupon site and have done very well (they are one of the big ones).

Please try to avoid ignorant and unfounded claims. The top companies in this space have pristine balance sheets and income statements and are practically cash cows.

That being said, if any of these actually IPO, I am not imlying this would necessarily be a good investment. One needs to take valuation and many factors into consideration.
More...


Groupon has never had a profitable quarter and has an accelerating net loss on it's balance sheet. False Start.
 
The fact we are even bothering to talk about a hyped up con job like this proves we are in (or close to the end of) Net Bubble II.

A discount per customer is NOT a customer acquisition cost, it is a ONE OFF BRIBE. After the bribe he/she is no longer a customer, any more than a hooker is your girlfriend after having used her services once.

Most of the Net Bubble I startups pre 2000 used some kind of trick to turn VC $$ into a subsidy for customers who otherwise wouldn't have been customers in a million years.

The early stage Groupon investors have the right idea. They realised they got lucky and are stripping the company of dumb VC cash.
 
You must log in or register to reply here.
Back
Top