Groupon Inc. (NASDAQ:GRPN) is down 13% today falling well below its value at the time of its IPO last year. The company went public at a valuation of around $13 billion, raising $700 million in its IPO. That made it the most valuable tech IPO since Google’s in 2004. Google’s raised $1.7 billion and there is no way Groupon’s name and business model are exactly on the same planet as Google’s in 2004 never mind the same scale. The company’s shares fell below their IPO level in November of last year and have stayed there since plummeting lower. Today’s fall is in response to a complete lack of confidence in the company after it revealed Friday it’s numbers for last quarter had to be downwardly revised. The announcement was late on Friday so today’s movement is a delayed reaction. The real question is, is anyone surprised?
When Groupon was up for IPO Jacob Wolinsky ran an article on this site calling the company ‘$20 billion worth of snake oil.’ He was right. The company has enumerable problems and has neither the leadership nor the resources to figure them out and solve them. First, as Jacob rightly pointed out the company has a business model which is endlessly repeatable and takes no expertise in doing so. All one needs is access to a web designer and marketing tools to emulate the company. That may have been problem enough but the company could have used its incumbency to drive ahead. Their business does after all rely on marketing and client relationships. There is nothing more important in such things as a firm with a name you can trust. That will never be Groupon.
Before its IPO Groupon was called out for running like a Ponzi scheme, paying off old investors with money for new ones. The SEC called them on to change ridiculous accounting methods the company used to make it appear more profitable. We asked back then why the SEC hadn’t stopped the IPO and we weren’t the only ones that did. The company has been using tricky accounting methods for a long time to make them seem in better shape than they are. It’s part of their corporate culture. The only position to have taken after their IPO would have been to short them. A company with a poor business model run by a management who think they’ve got the bones to outrun the SEC, after being caught by bloggers.
As we watch the company’s stock fall, it’s at 13.76% down now and I’ve been typing furiously, we must learn lessons from it. The furor over various tech company’s IPOs has become too much to bear. There almost seems to be a series of proxy IPOs going on as everybody waits for Facebook to announce. Affiliated services are snapped up at much higher prices than they’re worth and people keep talking about them. Groupon shows that online companies have their faults, some times the exact same as real companies. If these faults come to light before an IPO please listen rather than rushing ahead. At least, if you do buy at the height, allow us the liberty of saying ‘we told you so’ when it comes crashing. We told you so Groupon.