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The Groupon IPO is coming.
I don't know about you, but I am getting really, really excited (sarcasm goes here).
With the IPO of Groupon nearing, and the price point being set for their initial public offering, there has been a bunch of contraversory surround the not only the viability of Groupon ever generating a decent profit, but making money at all.
I have been in the Internet business since 2002, and I have seen some really heave advertising campaigns via the Google Adwords channel. However, none have ever been at the scale that Groupons has been over the past year and a half.
Every page I was it, it seemed there is a Google Ad pointing to groupon. Every search I did in Google, there was that pesky little Groupon ad to the side. I admit, I did click some of them, as some did capture my interest, but I personally have never bought a groupon. I am sorry, I am the part of the Groupons ads didn't convert customers at a 100%.
Recently Groupon started dropping these massive marketing campaigns, or should we say cutting back.
Why?
Because the company as a whole isn't profitable. Their US division made a 12% profit, but that was with surging marketing and administration costs associated with it. The problem is that without these marketing campaigns, Groupon will not get the same amount of website traffic or the same amount of website exposure, hence not as many people will be buying stuff they probably don't really need at 50-75% off.
In fact, according to Alexa, a website traffic and information company, Groupon's traffic has almost halved since the summer months of July and August. They were ranked ~200 most hit site online during those months, but have since fell to 312th position. This means that without their spending budget of $1 Million per day on advertising, they are losing some major traction...
Does this mean their model is broken? Does it mean that they required a break even marketing strategy, perhaps even a loss leader marketing strategy to attract customers that are either turning into one time buyers?
Who knows, I am not here to speculate on their paid marketing strategy, however this leads me to...
Groupon's Fresh New Kardashian'esque Approach to Marketing
It is rare that an IPO gets this type of exposure, this type of controversy, and this kind of LONGEVITY. It seems like we have been hearing for this IPO for years now...
Is this is stunt to get free exposure, in other words, a free marketing plan for Groupon. Are they going to try to retain this limelight exposure by getting married to an middle of the road NBA player...or are they going to do something absolutely ridiculous once they "brand" dissipates from the investment worlds terrain of thought to regain marketing.
Who knows, but what I can tell you is that there are only going to be a few people that make money off of the IPO. The instituational investors that get a discount premium on the stock and sell it within the first 30 minutes of the IPO...oh ya, and the CEO and those initial investors who cuffed over 1 billion big ones to keep the company functioning. They of course are looking for a sizable pay day.
Those who buy into a revenue generating coupon machine that needs more marketing grease it can afford, may be out of some of their hard earned money.
Good luck.
I pose this question in relation to Groupon, are they the next Enron. The loosely guided internals show that the only thing keeping this afloat is the fact that investors are still investing in this product, however I don't think they can fake their "almost profitable" vision for too long.
In the news, groupon share price has dipped below the IPO price of $20. If you were a normal investor and you bought in at $28 on the first day, you would be out 33%...if you were an institutional investor and got the initial "pre offering" IPO price, you would be down 13%. Can't say that I didn't see this coming...
I got another offer for discount eye glasses today. Had that one about 10 times this year. Yesterday it was another SPA discount. Groupon is going to completely dry up in most cities as the number of businesses that Groupon can work well for are getting few and far between.
Groupon ads seem to be back now. Their IPO has granted them an opportunity to spend frivalously on advertising. Look out Groupon, Google has just launch Google offers. More competition is entering the market and I believe the price to put a deal up is going to get cheaper and cheaper as the competition increases. I pity the folks who have invested in Groupon.
When Groupon first came out there were actually some good deals to be had, however the business model is quite flawed. I frequently get the same offers over and over again from companies that seem to be living off the people they get from Groupon. For example there is a SPA in Victoria that has offered groupons 4-5 times. Why would people want to purchase a spa treatment at full price when they know that another Groupon will be available? Also, who wants to see the same groupons over and over again? How many businesses are there that want to use Groupon? Well, I know two business owners who have used Groupon and they both sold thousands of groupons. One was a restaurant and the owner barely made a profit at all and think that it was a big waste of time. Groupon is running out of businesses to market in a lot of areas. In Victoria BC, the Groupons are really quite lame these days and nearly all of my Groupon notifications go straight to my junk as I delete them. I don't even consider Groupon deals as being that great. Groupon seemed to be making so much money, but spending a million dollars a day in advertising eats up profits pretty quick. Groupon isn't viral, the offers are getting worse, and there are many other companies out there doing the same thing. Maybe an IPO is the only way that Groupon will be profitable. Take money from investors and fill your pockets. Hmmm, something doesn't seem quite right here. The founders of Groupon are Rich, and unfortunately when they do an IPO thousands of middle class investors will be putting their money into the pockets of a company that doesn't turn a profit. It's like wall street stealing all over again each time a company like this goes public. "Here's my company that isn't profitable, now give me money so I can pay our executives 100's of millions a year". Then when the company eventually goes under as all unprofitable companies do, who owns the shares? YOU DO! Meanwhile the CEO's and founders are off with your money. Why not invest management who know a thing or two about turning profits rather than just investing in people who know how to take a company public and "go for a buyout"? If you have anything to add, I'd love to hear it.
I also know people that have run groupons for their businesses. They did so at a loss to attract new people in door. They viewed it as a way to advertise their company, in a way they were offering to pay groupon through the profit share so they could get a boost in their business. They did get over 1,500 new clients in a day, and they are very overwhlemed now because they now have to offer a FREE service to all of these people (after the groupon fees, their services were marked down close to 80%). If they don't get 20-30% repeat customers, they have worked for free for several months. This model is not going to continue to work. The word will get out and businesses are going to smarten up, go out of business, or get a real marketing plan. Also the rise in competition in the groupon market, including that from the big companies like Amazon, Facebook, and Google...local companies, liviingsocial, etc...I don't think groupons existing model is a long term business. Save your money and don't buy the stock. If your investor is telling you to buy or is adding it to their portfolio, you may want to reconsider who you are investing your money with.
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