This is actually a very interesting question. Keeping the specifics of Groupon's business out of the equation at the moment, the pricing of growth companies is an incredibly inexact science. If most of these companies were publicly traded and liquid, you'd expect fluctuations of at least 30% a day during volatile periods. Just imagine the atmosphere in an average startup: One day you're going to conquer the world, the next day you're doomed...depending on prevailing conditions and random issues that pop up. This "atmosphere" (or expectation) carries over to the people who are attempting to determine the market value of your company. That's what the stock market is trying to: from moment to moment, determine the exact market value of each company.
The market still hasn't mastered pricing stocks like these (and it probably never will, potentially extreme growth stocks like technology startups practically by definition have huge volatility), but it is getting better. Look at the skeptics who try to price startups on revenue/profits alone. Obviously a bunch of really smart people in a garage with a sound plan but no revenues are worth more than $0. Some of these groups are bound to strike it rich, so average across all of them and you'll get a positive (perhaps very large) number. This is why we see large valuations of early-stage startups. But how large should the number be? The exact value of a company is the present-value adjusted worth of all its future profits. Determining this number is what everyone who does value-based investing attempts to do.
But finding this number is impossible, especially if you're investing in a very young company. I think that a lot of tech investors today are attempting to average the value across a large number of promising companies, instead of looking too much at the specifics of a single one.
Due to the inherent volatility, investing in potentially extreme growth companies like Groupon and LinkedIn is a _hugely_ risky business, unless you happen to be a genius who sees something about their business that no one else does. There were probably geeks who made these kinds of observations about Google in its early history.
Another way of looking at it is to agree with marvin's assessment that tech companies (like Groupon) are inherently volatile and for any individual it makes sense to diversify. The people that cashed out didn't sell all of their holdings, or even a majority. They sold a relatively small portion so that their entire net worth wasn't locked up in an extremely volatile stock. That seems pretty reasonable to me. They'd (at least in my opinion) have been fools to do otherwise.
What do you mean by their "cash yield"?
I thought people investing in Groupon were doing so because they thought it might continue to grow as it had been, and potentially be absolutely massive.
I'll grant you there could be 30% fluctuations from one given day to the next, but the months of work determining an accurate valuation should smooth out a lot of that noise.
I'd guess a hundred man years of effort went into the deal. Furthermore, this isn't grad-student eating ramen effort. This is high finance. Smartest guys on the planet and all that. Sure, you can't think of everything, but there must have been some underlying value that everyone believed in.
Any other process - highway throughput, software memory usage, year over year daily sales, cancer survival rates, just about anything getting 30% worse in two days would be a pretty pathetic failure.
Perhaps it is just noise, and it'll bounce right back to IPO valuation. I'm skeptical that that price was reasonable.
http://www.sec.gov/Archives/edgar/data/1490281/0001047469110...
In general lockup periods are 180 days but I have seen 90 days in rare cases.
I'd imagine giving preferred employees a shorter lock-up would raise hell. Having said that, if you read the S1 it sounds like Morgan Stanley and Groupon have the right to extend executive lock-up by 18 additional days without notice and employee lock-up by 34 days. So there is some differentiation between stockholders.
Right?
According to an earlier Reuters analysis, Groupon shares are very attractive for shorting because the company is losing money, had issues with accounting, unproven business model, and may face stiff competition (http://www.reuters.com/article/2011/11/14/us-groupon-shortse...).
Meanwhile LS's offers are usually fairly constant in terms of discount, and focus on areas I find more interesting.
This must have something to do with the quality of script/process that LS's sales folk are working with.
Surely a restaurant (for instance) can run a Groupon deal once every few months?
A restaurant does not have 300% profit margins, so long term a restaurant cannot support this model. Only service businesses, or businesses with fixed costs with low variable costs per additional customer, can be on there.
Since the coupon magic/mania started (everybody and their dog is doing a coupon site). Has there appeared a site/service that disrupts this whole model?
What I mean is - the Service Providers are getting really a shitty value out of GRPN other daily deal sites. Initially GRPN needed loads of cash to get their sales people on the streets and logistics behind this were pretty massive.
But today, I see this market as completely commoditized. Everybody and his dog knows of the daily deal sites. Lately I haven't really met anybody who is doing some kind of services who doesn't know of daily deal sites (and I'm from Slovenia).
So here is my question - is there a sort of service that would take a one time fee/subscription for service providers and let them run their own daily deals.
This way you cut out the middleman and the (expensive) sales people and this would even offer sufficient value to the service providers.
Service providers talk, they talk to their customers they talk to their competition - otherwise they provide a shitty service, which doesn't bring in much money, which gets you out of business.
Imagine this conversation:
Provider Alice: Hey I just got my first daily deal out the door. Hope it recuperates the steep cost in the long term.
Provider Bob: Cool, where did you do it?
Provider Alice: Groupon Clone X! Because...
Provider Bob: Nice, I do all my deals on Disruptive service Y, which costs me only a fraction of the Groupon Clone X.
Provider Alice: Motherfucker...
What I'm trying to say is that this market is a race to the bottom and will probably enter the schoolbooks as an example of a dead-end business opportunity.
The sudden explosion in shorting caused by this drop in cost to borrow is probably seen as a negative signal and making some investors nervous, causing the stock to drop as they sell it off.
But the cost to borrow doesn't normally drop from 95% to 30% in the absence of a lot of newly-issued shares. So why did this happen? Someone must have made a large number of shares available to borrow - so the question here is who was it and why did they do it?
With the Groupon float so teeny, it's a lot easier to manipulate pricing. This could be completely straightforward and boring, but this could be an institution with advance notice of some favorable information about Groupon setting naive investors up for a classic short squeeze. (Good news comes out, some shorters panic and buy to cover their shorts, increased demand causes prices to rise, more shorters panic... iterate your way to a massive pop and a whole lot of severely-burned shorters.) This would be a good way to compensate for the inevitable drop when the lock-up period expires.
TL;DR - Don't buy or short individual stocks without fully understanding what's going on, and that goes beyond the fundamentals of the business.
I'm still trying to learn how investing and markets work, but isn't this stock manipulation? I mean, if I get a bunch of people to agree to short this stock, and others observe this happening, then the short will come through by virtue of a fall in share price because people saw that I was shorting.
I'm still trying to wrap my head around how markets work, when making observations on the system necessarily changes the system, rendering your original observation invalid.
Personally, I reached deal fatigue and unsubscribed from all of the sites. How many times can you possibly eat out / get a message / get your car detailed?
http://www.thereformedbroker.com/2011/10/30/groupoem/
Here are the first three verses as a teaser:
Gather round, dear investors, and hear all about
The worst IPO that has ever come out
It's hitting this week if the stars align right
But only the foolish would look for a bite
---
For Groupon is now past the peak of its glory
Its promising start a well-known story
Of youthful intensity, vision and zeal
Of crafting the perfect consumer-led deal
---
City by city, Groupon grew like a weed
Positioned as marketing for the small biz in need
Coupons for shoes and coupons for socks
Offers for Lasik and half-off on Crocs
What about derivatives? Are there calls and puts on Groupon?
I can just hear the Google people in their next pitch meeting to some great start-up, "You don't want to end up like Groupon do you?"
havent noticed any posts or comments from him in this thread though , kind of tells it ...
is he still hanging in here
