Groupons's fall from grace continues apace. Briefly a blazing, rising star in the social media firmament and now dimming rapidly as it collapses into a red dwarf, Groupon is a classic example of the hype and over-valuation that still characterises far too much of the web. Martyn Warwick reports.
Groupon's share price fell by 6.5 per cent yesterday to close at US$7.72. When it floated on a veritable deluge of bugle oil in November last, the initial public offering price was $20 a share. Punters are getting out of the falling stock and taking a hit now rather than wait for a turnaround that is about as likely Tom Cruise becoming the next pope.
So, at the end of its first day of trading, a mere eight months ago, Groupon stock closed at $26.11 and the company had a market capitalisation of $16.5 billion. Yesterday it was worth $5 billion and falling. Groupon's share price has tumbled by more than 70 per cent since it launched and has collapsed by 24 per cent in the last month alone.
In February, Groupon published its first trading figures after listing on the Nasdaq. It lost $42.7 million.
As the UK's Financial Services Authority is always telling over-exuberant shareholders, "Remember, the value of your investment can go down as well as up." Well, the same applies in the US - in spades.
Yesterday's fall was, allegedly and apparently, occasioned by "concerns about economic weakness in Europe" which is where Groupon derives a quarter of its revenues.
Back in the March, the UK's Office of Far Trading (OFT) gave the voucher company three months to get its act together and abide by British legislation after it found Groupon to have been in "widespread breach" of consumer protection laws. The OFT cited specific concerns about "pricing, advertising, refunds, unfair terms, and the diligence of its interactions with merchants".
The response from Roy Blanga, Groupon's UK managing director, was to "acknowledge that our processes and procedures have not always kept pace with our rapid growth”. Big of him.
He added, "Groupon has agreed to make sure that prices in its adverts are accurate and honest and that any limitations on availability are made clear." In fact Groupon 'agreed' no such thing, it is a legal requirement to which it must adhere or face the consequences in a court of law.
Groupon will report it's Q2 figures at the end of this month and they are expected to make grim reading especially as we already know from comScore data that in June visits to the Groupon site were down by 15 per cent year-on-year.
Also, it must surely be significant that, last week, Groupon's chairman, Eric Lefkovsky, posted a blog in which he declared his intention to "reduce" his day-to-day responsibilities at the company to concentrate more on his investment outfit. Well, at least he didn't come out with the hoary old chestnut of "spending more time with his family" but his words and deeds can hardly be construed as an unequivocal vote of confidence in the future of Groupon.
The point is that the Groupon business model shows the inherent weaknesses of building a business plan based on faddish Internet modes and fickle users with little or no brand loyalty.
That is exacerbated by Groupon's own admission that it's internal financial controls have been week and the fact that the company has already been forced to restate its earnings.
Recently, Groupon spurned a $6 billion offer for the business from Google. Now it is worth about $5 billion and Google and others will be circling quietly in the shallows as Groupon flounders, just waiting to pick the company up for a song in the months to come.
Meanwhile, Groupon is facing increasing competition, not least from Amazon, whose AmazonLocal coupon and voucher enterprise is gaining rapid traction at Groupon's expense. Simultaneously, the company's senior management, bums up and heads down firmly in the sand like a collection of ostriches in Brooks Brothers suits, refuses to make any public comment.
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