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May 18, 2012

Why I didn’t write about Groupon’s 1Q earnings

Filed under: Uncategorized — Rakesh Agrawal @ 7:09 am

Some of you undoubtedly noticed that I didn’t write up my views on Groupon’s earnings.

It’s not because Groupon suddenly proved that I’ve been wrong for the past year. To the contrary, Groupon’s earnings report reinforced everything I believe about the company. Since earnings, I’ve bought even more puts against the company. I believe that the markets continue to misread the company and that the company takes very deliberate actions to confuse the markets. There are a number of intricacies of accounting that come into play. (In this case, unlike in the past, Groupon isn’t doing anything wrong.)

The primary reason I didn’t write up my analysis is that it doesn’t help small businesses or entrepreneurs. It would primarily help professional money managers and hedge funds.

My goal all along has been to help small businesses and entrepreneurs. The byproduct of that has been helping professional money managers. But professional money managers can afford to pay for my analysis; many of them value it and already do. It’s counterproductive for me to give that analysis away.

This situation illustrates the two markets for financial news: the consumer market and the professional market. Over the past year, a number of people have told me that I’m providing professional-grade analysis in the consumer media market.

Unfortunately, the two markets also pay vastly differently. It’s incredibly hard to make meaningful money in consumer media. You need a lot of scale. But if you have unique information in the professional markets, it’s worth a lot of money.

Tiering of information is very common. Bloomberg and Reuters are two of the world’s highest quality news organizations. But they fund their news operations with the massive profits they make from their professional products. I was talking to someone earlier this week who told me, “If there’s one thing we can thank Wall Street bankers for, it’s funding two high quality news sources.”

There’s another challenge with writing sophisticated financial analysis for the consumer press: many people don’t understand it. Then I have to deal with comments and personal attacks from people who have no clue what I’m talking about. That provides a negative value for me. When I’m talking to hedge funds and mutual funds, at least I know they understand the core of my argument. (Even if they don’t always agree.)

Going forward, I’ll continue writing about business models and elements of the story that affect small businesses and entrepreneurs. I want to help both of those groups succeed.

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1 Comment »

  1. Thank you for your time and effort.

    Comment by Erik Stenson — May 18, 2012 @ 8:13 am


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