I just read a WSJ article on the upcoming Groupon IPO, and I’m amazed.
I had no idea Groupon was making 644 MILLION revenue in the last quarter. That to me is incredible, probably since I’ve never used Groupon (doesn’t interest me), and don’t actually know many people who do. How much revenue does it make per deal bought? A few cents? A buck? A few bucks? Regardless, the idea that 300-600 million deals (maybe more) are bought on Groupon in a quarter (so at least 3.3 million deals a day, at least 382 deals a second) seems ridiculous to me.
But I have a queasy feeling this might not be the greatest investment ever. A $20 Billion valued company offering $1 billion in IPO? Please! How is Groupon worth $20B?
Everything about Groupon seems lacking of a moat. Its business model is very copy-able, and Facebook Deals looks like its doing the same thing on a greater network. And there hardly seems to be operating leverage, characteristic of many web/social media companies:
The company said it expects its “operating expenses will increase substantially in the foreseeable future as we continue to invest to increase our subscriber base, increase the number and variety of deals we offer each day, expand our marketing channels, expand our operations, hire additional employees and develop our technology platform.”
Don’t get me wrong. The idea behind Groupon is very creative. So is selling magical lemonade. I just don’t get how it’s profitable, and to an extent, unique. It’s “social media,” but lacks a truly viral network like Facebook or even Linkedin. And if people like to rag on Linkedin for being pricey all the time, there’s no reason why Groupon should be heralded. I’m thinking there might be great hype and gains in the stock in the initial months, but in the long term, I’m very bearish.