Groupon Is a Straight-Up Ponzi Scheme
- Thread starter Pekelo
- Start date
You are correct in that they will get lots of bargain hunters, as the customer is selling their product at a discount. But all kinds of companies have sales all the time. The idea is to get a new customer to try your product.
I am a regular user of the coupon sites and I likely wouldn't return to 90% of them to pay the regular price. But once in a while, I come across a place I like and would come back. This marketing tool is perhaps not for everyone, but there is a large number of businesses that it does work for. This is simply another way of having a sale and advertising for it online. And the bonus is that you are guaranteed revenue upfront for every customer.
Online advertizing is not a fad. Who knows if this particular type of online advertizing will grow or shrink in the future, but I think you are underestimating the demand here. The business model is absolutely sound.
@ Ghost 7222 and Pekelo,
I see the re-stating of the revenue as simply an accounting difference of opinion. There was no ambiguity that Groupon collects a certain amount of revenue from the end user of the coupon and remits a portion of this to the provider of the service. Many businesses that I know would count that as revenue and the portion that they give back to the provider of service would be under COGS (cost of goods sold). So the SEC or whoever didn't like that, fine. It should not change their EBIDTA or earning or the bottom line at all. This is not fraud or any wrong doing.
As for me being correct that this is not a PONZI scheme only by 'accident', I beg to differ. It is not even close to a PONZI scheme. Not only that, it is not even a straight up fraud. In fact, as far as I know, there was not one single criminal charge, not a single crime commited. I'm not only 'technically' right, I'm right in every other sense in this case.
As for the balance sheet, I should have checked this particular case. You are correct that it is not exactly prestine. The other companies that I am familiar with are fine. I suspect that one of the main reasons for this in Groupon's case is that the owners (and to a lesser extent other executives) have 'bonused' themselves out the wazoo and cashed out a portion of their ownership.
Which brings me to the next point. As a venture fund or other investor, they bought a portion of Groupon. They now own a piece of Groupon and the owners now have their cash. This is a fair exchange. It is up to the investors to perform proper DD. It is not a PONZI or fraud or illegal in any way. As to the wisdom of this particular investment, it is too early to know for sure, but with some senior officers from the company leaving, I agree there is cause for concern. Part of this DD, at least for value investors, is the quality and character of management not to over compensate themselves and spend wisely in general.
The market leaders (the initial owners of the companies) in this business are making lots of money, on this point I have no doubt.
I see the re-stating of the revenue as simply an accounting difference of opinion. There was no ambiguity that Groupon collects a certain amount of revenue from the end user of the coupon and remits a portion of this to the provider of the service. Many businesses that I know would count that as revenue and the portion that they give back to the provider of service would be under COGS (cost of goods sold). So the SEC or whoever didn't like that, fine. It should not change their EBIDTA or earning or the bottom line at all. This is not fraud or any wrong doing.
As for me being correct that this is not a PONZI scheme only by 'accident', I beg to differ. It is not even close to a PONZI scheme. Not only that, it is not even a straight up fraud. In fact, as far as I know, there was not one single criminal charge, not a single crime commited. I'm not only 'technically' right, I'm right in every other sense in this case.
As for the balance sheet, I should have checked this particular case. You are correct that it is not exactly prestine. The other companies that I am familiar with are fine. I suspect that one of the main reasons for this in Groupon's case is that the owners (and to a lesser extent other executives) have 'bonused' themselves out the wazoo and cashed out a portion of their ownership.
Which brings me to the next point. As a venture fund or other investor, they bought a portion of Groupon. They now own a piece of Groupon and the owners now have their cash. This is a fair exchange. It is up to the investors to perform proper DD. It is not a PONZI or fraud or illegal in any way. As to the wisdom of this particular investment, it is too early to know for sure, but with some senior officers from the company leaving, I agree there is cause for concern. Part of this DD, at least for value investors, is the quality and character of management not to over compensate themselves and spend wisely in general.
The market leaders (the initial owners of the companies) in this business are making lots of money, on this point I have no doubt.
That was my initial point. The owner of the company made huge money. What you call "stealing" is someone selling at what they perceive is fair value or better. The counterparty to this thinks there is more upside and therefore is a buyer at that price.
Is it stealing to sell at the peak of the market? If I sell a stock at $10 and it goes down to $1, have I stollen $9 from the person who bought from me? Should they call the police? No. We invest and perform some DD and hope what we buy goes up. Sometimes it doesn't work out. This doesn't mean it is fraud. Whatever happens in Groupon's case, this concept is a legit business.
If Groupon misrepresented their company, that is another story. But anything of this sort is simply speculation.
GordonTheGekko
Guest
+1 on dumb vc cash
Those nitwits no sandhill road....
Those nitwits no sandhill road....
This is not really an online advertising business, Google is. This is a coupon advertising business, using the internet (but it could use snail mail too, or coupon books at grocery stores, would have the same effect).
As we explained at the beginning of the thread, the business is VERY unsound, as the history of the company shows. You tell me why all the early investors are fleeing like rats and the company is cash starving, not to mention the delayed IPO. They are all warning signals.
Once Google enters the same market (and there are already a dozen competitor sites) with its unlimited cash, Groupon can say goodbye....
It is fair if they actually know what they are getting for their money, what I don't think they know. I remember Yahoo buying broadcast.com for 6 billion bucks. Go to that website and tell me what did Yahoo get for their shitload of money?
Now venture capitalist are gamblers, they throw money around and sometimes they harvest big profits, but most of the time, their money goes down the toilett. They were stupid not selling the company for the offer earlier, and they will never get 1 billion anymore, it is simply not worth that much in the real world...
Going back to the Ponzi issue, a Ponzi can have real product, but by the definition it has to have a failing business model and the supposed profits are paid out from the incoming new cash (venture capital). The IPO would have been that new cash, the reason why they needed an IPO because the early capital was taken out....
By the way Amway is a Ponzi too, with real product, that doesn't mean the whole system is not set up in a Ponzi way....
90% of revenue is marketing costs. The business model works for now, but is susceptible to even a minor shock. If revenue per customer goes down 10%, groupon starts losing money. If marketing costs per customer go up 10%, groupon starts losing money. Margins are incredibly tight.