Groupon, April fools gone bad?

groupon, thisthatandthemba, this that and the mba, mbaWhat happened to Groupon?  This has been a terrible past week for deal of the day website.  The stock plunged 17% as the potential for an SEC probe rattled the share prices.  Groupon had the largest IPO since 2004, when our buddies at Google had a $1.7billion dollar initial public offering. 

So what happened, well first let us hope that this is not another Enron or another episode of corporate malfeasance.  Initially the company came under scrutiny when before their IPO they revised their financials with the Securities and Exchange Commission.  The company came recently under scrutiny when an auditor discovered that Groupon did not have adequate reserves to cover potential customer refunds.  Groupon was also cited as having material weaknesses in their financial controls. 

Higher than expected numbers of returns for higher ticket items, may show that Groupon isn’t adequately positioned to handle higher ticket items such as cruises or vacations.  This is partly the reason for the large accounting change and restatement of the financials.  After the bell on Friday, Groupon was forced to restate their financials with revenue $14.3 million dollars less for the 4Q 2011.  

On Monday, the stock was downgraded by two brokers.  One analyst predicted that having to increase reserves for customer refunds and financial mishaps, Groupon is poised to collapse.  There are many law firms salivating at the possibility of attacking Groupon while they are down.  Be ready to see an onslaught of claims against Groupon for the losses they suffered as a result of their restatement and lack of financial oversight. 

What do you think; will Groupon be around this time next year?  It certainly does not make me feel warm in fuzzy inside to start investing with them!

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  1. The two greatest stock pickers, Peter Lynch and Warren Buffett have always focused on companies that are MAKING MONEY. Groupon is still losing money. Forget about investing in companies that are losing money because investing in these companies is gambling, not investing.

    • @ Short Road – Potentially High Risk high reward? I agree with you about that philosophy, I am all about mitigating my risk. Sure others can be risky with their money, but when it is money I worked for I prefer the safe bet!

  2. I wonder if it will be around. There are so many coupon sites now that they are a dime a dozen so to speak. The edge has been lost and so has the desire to use them a lot. The market is now over saturated with coupon sites.

    • @ Miss T – Right on, there probably was a market when they first started out but they do seem to be a dime a dozen. I think they may still have the first mover advantage going for them.

  3. I’m sure they’ll still be around for a while, but they’re obviously going to have to work hard to correct their finances and regain customer trust. Then again, it depends on how bad the situation truly was. You hear of other companies paying out the founders excessive am0unts of money that should’ve been kept on hand.

    • @ Jeremy – I don’t know they were the first deal site to go public, others may have been waiting in the wings ready to go but after this debacle may drop back and continue not going public.

  4. Currently, it’s not looking real good for Groupon. The company is suffering a terrible financial setback, but it can rise above it. It’s going to take a lot of hard decision-making and financial maneuvering for the company to get back in the black. But, the powers that be are gonna to have to buckle down hard. Also, they are in competition with so many other coupon companies that will swoop in for the kill if things don’t turn around soon.

    • @ Anthony – that is exactly what working in accounting is, financial maneuvering! Funny how they can mistate their financials by that much, I mean if you can just talk your way through the audit, the auditors will likely believe anything you say!

  5. I think they’re going to be around for a bit as well. They have the brand recognition and are working on ways to increase the profit.

    It is interesting though and you never know what you’re going to find once you open up the books!

    • @ Jason – I see them being bought out in the near future by a company like Google. I know Google did make an offer in late 2011. Interesting to follow this. I personally have never used Groupon, but have heard good things by others who have.

  6. I often wonder where Groupon will be in the future. Their deals are horrible now and I haven’t bought one in forever.

    • @ Michelle – it sounds as though they lost their competitive advantage in your eyes. Was it since they went public or as they moved into larger ticket items?

  7. I’m thinking Groupon is going down in flames. I think the many issues it’s had are due mainly to incompetence, not malfeasance. But the reason I think Groupon is doomed is a flawed business model. The problems with the SEC and so on may catalyze the inevitable. Be pretty sporting to buy Groupon stock now, imo. Just my 2 cents…

    • @ Kurt – I appreciate your 4 cents 🙂 The SEC probe, lawsuits I don’t see how they are going to fight this one off, and the consensus on here believes they aren’t very good deals anymore!

  8. I doubt they’ll be around. For an Internet company, they rely too much on human labor to be cost effective. Plus their deals suck. Even for big cities.

  9. I doubt they’ll be around. There are so many other sites similar to Groupon popping up daily that they have a lot more competition now.

  10. Yeah, I never understood what made them so valuable… a subscriber list of people who are “by definition” not loyal because they’re just looking for the next great deal? That’s pretty much it. The tech is pretty transferrable, hence all of the competition. If I weren’t such a “simplicity” guy when it comes to investing I’d be more likely to short this stock than go long…

    • @ Nick – the buy and hold strategy is definitely not a position that I would want to be on this stock now. Thanks for the Tweet as well! It seems like every city has one of those seize the deals thing now too, which are really focused on your particular geographic region.

  11. There is a great site that follows daily deal companies like Groupon. Don Young Jr. is one of their writers. He has said for almost a year that Groupon has major problems (this was before their IPO and since), namely, their account methods are majorly suspect.

    Personally, I don’t think they will be around in 5 years because they have never generated a profit and have huge amounts of debt. They have cashflow, but not profit.

  12. Groupon and other sites like them started out with a bang and then began to fail. I personally think it is because so many retailers used Groupon to promote their business but didn’t realize how much money they were really losing until it was too late. Many times the coupons entice you to shop or eat at a place once because you bought this groupon coupon, but how many people really go back a second time?

    • @ Tackling our debt – kind of like the dine a mate program books they are always selling. I know my wife and I will try a place once in a while if we have a coupon, I can’t recall ever going back to some of those places.

  13. Well I don’t know much about investing or stocks, but economically, they do have the first mover advantage. They were the first and the best at the beginning of their journey. Now, though, there are SO MANY sites like Groupon. We’ll see whether they last!

    • @ Daisy – good point with the first mover advantage, they are the company that most people recognize. It will be interesting to see how they come out in the end after all is said and done.

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