Every business that grows massively, and does it too quickly, is bound to have problems. Groupon (GRPN) is no exception. In fact, they are becoming the “poster child stock” for such issues. While everyone complains and complains about the Facebook IPO, there is reason to believe that Facebook is more a victim of the drift from their users using the web site more to their users using mobile and tablet devices. It’s clear to me that one really cannot blame Facebook for this, and one should also understand that they still have their membership. Regarding the bogus sign-ups, all of us know that was the case. Come on.
Groupon is another issue entirely. Between the sweetheart deal with those that funded in early 2011 and the customer service issues for merchants that have fueled their latest problems, things appear to be a bit disorganized.
Dumping the stock, according to the Wall Street Journal:
Maverick Capital, Fidelity and the Swedish investment firm Kinnevik
Here are a couple of links to some of the customer service issues:
Venture Beat: Groupon is threatening small merchants with lawsuits
Huffington Post in June: Using Groupon ‘Worst Decision I Have Ever Made,’ Says Merchant
Esquire in June – Very detailed look: The Problem with Groupon – Or, rather, its many problems, and why they might now burn us all
While some suggest a “turn-around” (Buy Groupon: An Examination Of Merchant Satisfaction And Accounting Shows That Issues Are Being Resolved – A Seeking Alpha blog by “Helix Investment Management”), I don’t see it. I am reading too many complaints on small complaint sites, message boards and independent support forums. My take is that Groupon does not get it. They are dealing with very small merchants in most cases. These people provide services or products up front in most cases, and they need to be paid in a timely way. While I am never privy to the contracts the small merchants really signed with Groupon, Groupon needs to understand that small merchants cannot give out product one month… and get paid way later.
Google knows this, thus their Adsense pays immediately when levels are hit. Google understands that web publishers can only afford to provide content if they get paid for it. With Google, bring in $100, and you get paid this month. Fall short, it slides into the next month. That’s reasonable, because the company that has employees and has many more hits than my sites do and gets revenue in the tens of thousands also needs that money right away to pay their people. And their servers, too!
They understand that the little merchants who advertise with them need to get their products out quickly, so ads are approved right away. There is no waiting and waiting for delivery.
Amazon is the same way. They understand their buyers and their merchants.
Groupon needs to learn from Amazon and Google. Then they need to make drastic changes. The days of being “new” are over. Get it done right, and do it right away.
Right now to me, Groupon is a short. I hold no present position. I may do puts, but have no real intention right now.