Coupon for Groupon

Wikipedia - Gartner Hype Curve


On Friday the Grauniad/Observer asked us what we thought of the current Groupon brouhaha, what can we say except our story hasn't changed since 2010, when I summarised this post, where I was jousting at the Groupon boosters, with this view of Groupon:

...its a nice, viable business - but not the New New Thing that it is being hyped up to be....once the hype is over - smaller market [cap], lower margins, back to Coupons 2.0

When it IPO'd in 2011 we noted that a lot of people were going to lose their shirts:

We can only apologise to the readers of our Bubblewatch series, in that we never predicted an attempt to IPO a Greater Fool Theory dotcom business before the big one [Facebook] had gone out. Move the notch up one (see chart in linked post). DotCom II is nearly here now*....a whole bunch of dumb pension funds will invest - with your money. [But} This Time It Is Different, as everyone seemed to arguing at D9.

For what its worth, I am unimpressed with all the calls to remove the CEO's head, its the kneejerk response of the panicking class. It works if he is under-executing, or a Bright New Thing can take the company in a bright new new direction, but that is not the problem here. The problem here is as old as snake oil: greedy-but-dumb investors thought that social media fairy dust would transform a coupon company (typically trading at 1 x revenues + cash) to a super-dotcom trading at dotcom values. It won't, and the social media bubble has now deflatuled, so everyone is overcorrecting like mad as they slide into the Slough of Despond (see Hype curve above). I think human "animal spirits" have a lot to answer for!

And the CEO, Andrew Mason, has done a darn sight better than many, he managed to IPO in the bubbletime, at the top of the Peak Of Inflated Expectations and keep $1.2bn cash in hand while getting the company to be both market No 1 and to break-even status. He has thus given Groupon a hell of a lot of runway to "pivot" on, or improve their efficiency, or downscale, or whatever - the point is they have the cash so they have the room for manouevre. Many others don't.

But fundamentally, the issue is that they are a coupon business - it's a real business, so it has real business costs, as we said to the Observer, and that means it could never sustain those dotcom valuations in the short term. Reminds me a lot of directory businesses like Yell.

*it's gone now, Facebook saw to that.