What's Wrong With Groupon? - Timothy Sykes

What’s Wrong With Groupon?

Over-Hyped Stock: What’s Wrong with Groupon?
Groupon: Collective Over-Hype
Collective Buying, Collective Confusion over Groupon
Is Groupon Still Relevant?
Groupon: Smart, Stupid or Just Irrelevant?
Groupon: Should Investors Be Patient?
Groupon: Patience, While We Wait for Vision
Grappling with Groupon’s Many Makeovers
Will 2016 be the End of Groupon?
Groupon pic

I still get a ton of questions about this stock daily so it’s time I write about it. Groupon has been the poster child for over-hyped tech companies since 2011, but it’s still managing to hang on — with far too many longterm bagholders holding their breath, waiting for anything positive to hit.

As I teach in this basic penny stock DVD guide, Groupon Inc. (GRPN) is a classic “crow” pattern, its stock gradually getting chipped away until there’s nothing left.

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Its business staying power will depend on whether it nails down the right business model and can convince investors that its strategy and leadership back-and-forth will finally land on something that makes sense.

It’s certainly not a black-and-white story. Investors seem to be split down the middle. After all, at its inception in 2008, Groupon was a highly original idea. And despite the failures, it still exists eight years later…although the stock has gotten destroyed and believers are poorer than ever.

So, is this a “crazy train ride” that didn’t have “enough time to prove its model actually worked before going public”, as one analyst put it? Or is it a success story that is simply a work in progress? Or both? Should we all stop laughing?

Not enough for Wall Street

If you’re unfamiliar with the company, Groupon is a tech-focused collective buying platform whose start-up MO was to bring businesses and consumers together.

For small- and medium-sized businesses, it was a new, free advertising medium. For consumers, it was a way to get in on group discounts through group coupons, or ‘Groupons’. For Groupon, the profit was to be in a portion of the coupon value—about half of the proceeds from prepaid vouchers.

So far, there hasn’t been much by way of profit.

Groupon’s net loss was $820 million on revenue of $4.3 billion between 2009 and 2013.

Last August was the first time it reported a profit, and even that was on the back of a major divestment. Even in that rare second quarter, it still missed estimates, and its stock slid further.

Since going public, its stock has gone from $26 a share to under $5.

Right now, Wall Street analysts predict Groupon’s shares will spike from $2.5 to $9 this year, based on data compiled by Zacks, but the consensus stock target is at $4.769. On Zacks’ 5-point scale (where 1 represents a Strong Buy and 5 a Strong Sell), Groupon has an average Broker Rating of 2.81 (based on ratings from 13 analysts)…and if you ask me I doubt this stock gets over $7/share let along $4-5/share anytime soon.

What everyone will be looking at is Groupon’s next report due around 11 February. Their last report came in at earnings of $0.02, and the Street predicts new earnings of $-0.05 this quarter.

Revenue hasn’t been the problem. In 2010, the year before it went public, Groupon earned $713.4 million in revenue. In a single quarter last year, it generated the same.

It’s grown. In fact, Groupon has been quite aggressive about growth and expansion, but Wall Street demands more than growth. Wall Street needs investor confidence, and this is where Groupon has failed. Its stock has lost 85% of its value because the company failed to meet very high expectations. Keep in mind that Groupon didn’t set these expectations…but it is what it is and stocks are priced based on how well they achieve investor expectations.

One ongoing problem is that Groupon has been far too labor intensive, and labor is the downfall of any online platform.

In order to seal all these deals with smaller businesses, Groupon needs to invest a lot of labor time, and investors have yet to be impressed with the revenue-per-employee numbers. The Wall Street Journal compared Groupon’s $69,000 in revenue per employee to Amazon.com’s $127,000.

RELATED: Four Books That Every Entrepreneur Must Read in 2016

Playing the volatility

If nothing else, this is a company to watch for its wild price swings.

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For Groupon, more volatility has been created by changes in strategy, restructuring and a number of top leadership changes—each one promising to be the recovery cure.

While sales have doubled over the past three years, this has been at the expense of profit.

Last summer, there was a lot of talk about it being the right time to get in on Groupon ahead of a major strategy change that promised to reverse the five-year losing trend.

The reality is that the new strategy has failed to boost investor confidence. Everyone’s still wondering if there ever was a clear-cut vision. The new CEO, Rich Williams, seems to agree. Groupon scaled up too fast and too far, he said during an earnings call. His answer: Shed unprofitable international operations, focus on local businesses and spend more on marketing.

To this end, the company has also cut 1,100 jobs along with exit operations in seven international locations, but investors still view it as too labor intensive and wishy-washy.

There is some visible upside—and this is why Groupon is still giving it an aggressive go. Earlier this month, it teamed up with GM and OnStar to market local deals. OnStar has long been courting Groupon, which had already “done the heavy lifting of finding merchant partners.”

Groupon was an original idea. Original ideas are always before their time, and it takes a bit of re-engineering to get it right. Now that the heavy lifting is pretty much complete, Groupon could very well be on the road to recovery, but it’s a crapshoot and my millionaire trading challenge students haven’t turned $1,500 into $1 million in 3 years betting on crapshoots.

At the same time, both businesses and consumers have learned to do a lot of the heavy lifting themselves. Looking at the

From December to January, Groupon’s average volume was 9.2 million shares per day. Shares were down over 10% year-to-date as of late January, at which point it was dubbed the “dead cat bounce” stock of the day.

Above all, beware of stocks that can’t meet high expectations. A lot of analysts are bullish on this stock because of high expectations over the next 12 months based on yet another strategy and leadership change, but Groupon has been down this road before, failing every time. Will 2016 be different? Possibly, but the odds are low and experience teaches me that the answer is no.


Posted in Groupon, Tech Stocks

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2 comments

Timothy Sykes

Hey Everyone,

As many of you already know I grew up in a middle class family and didn't have many luxuries. But through trading I was able to change my circumstances --not just for me -- but for my parents as well. I now want to help you and thousands of other people from all around the world achieve similar results!

Which is why I've launched my millionaire challenge. I’m extremely determined to create a millionaire trader out of one my students and hopefully it will be you.

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PS: Don't forget to check out my free Penny Stock Guide, it will teach you everything you need to know about trading. :)

  1. Chris Vaughn

    Great article. In my opinion what is truly sad about this company doesn’t have anything to do with the business as far as if Groupon makes a comeback or not. It’s that so many people only look at stocks as an investment that you must hold. People with that mentality will either buy in with hopes that Groupon will be their golden ticket and get stuck holding bags of ish… or they’ll avoid it like the plague. In reality those same people should be listening to you and trade the hell out of it on the way down, taking advantage of the pops and drops of this dying crow. Thanks Tim!

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