Groupon shares dropped to a new all-time low today as its lockup ended, releasing a torrent of new shares on to the market. Thirty minutes into the trading session, Groupon had already traded 75% of its average daily trading volume. This was Groupon’s third highest volume trading day. (Disclosure: I have various puts against Groupon.)
Groupon filed to go public a year ago tomorrow. Back then the New York Times estimated a $30 billion valuation for the company; today’s closing value was $6.3 billion. That’s about 80% off. It’s just barely higher than the $6 billion that Google reportedly offered for the company last year.
Public market investors have lost a Groupton on the stock, which is down 52% from its offering price and 63% from its first-day close.
Early insiders are still fine, of course. Groupon co-founder Eric Lefkofsky and his affiliated entities took nearly $400 million off the table well before the IPO. Even those who got in the last round of financing, such as Fidelity, T. Rowe Price and Andreesen Horowitz are up, at least for now. Those shares were purchased for approximately $7.90, split adjusted. At today’s close, that’s a 23% return.
For locked up shareholders, the timing of the lockup’s end couldn’t have been worse. It came shortly after Facebook’s IPO and on a day with bad macroeconomic news.
What’s ahead for Groupon
I have been following the company closely since the S-1 was filed; I’ve predicted that without substantial changes to its core business model, Groupon stock is going to zero.
The company is trying hard to diversify beyond its core daily deals business with forays into loyalty, travel, liquidation of unwanted merchandise, instant deals and, most recently, payments.
Groupon Now, once touted at what Groupon would have been from the beginning, has been an unmitigated failure. Although the company likes to say that Groupon Now sold 1.5 million Groupon vouchers, that’s roughly 1% of Groupons sold last year and likely a smaller portion of revenue. “In just one year Groupon Now! has hit a milestone that took the original Groupon deal platform 15 months to accomplish,” Dan Roarty, VP of Groupon Now! said in a press release. But once you reach a certain notability and are a multibillion dollar company, your success has to come much, much faster. Tom Cruise took 18 years to make his first movie. If it took him another 16 years to make the second one, that would be a failure.
To be fair, Groupon’s other businesses don’t have the structural problems that Groupon’s daily deals product has. They aren’t toxic for merchants. But they also aren’t gigantic profitable businesses. Here is my quick handicapping of the new product lines:
- Getaways – Highly competitive business, with margins in the 20-30% range (vs. 40-60% in the daily deals business). The quality of Groupon’s offerings have been lackluster. I had my own terrible experience with Groupon Getaways.
- Goods – Margin competitive business. Groupon doesn’t have the logistics capabilities of Amazon or the ad distribution power of Google.
- Now! – Low volume, forces a change in consumer and merchant behavior. LivingSocial abandoned its product in the space.
- Rewards – Trying to change consumer and merchant behavior too much. Structural flaws in the product.
- Payments – This is a potential opportunity for Groupon, but is incredibly competitive. Not only is Groupon comepting with Square, PayPal and Verifone, there are hundreds of independent sales organizations that target this space. Groupon would have to tremendous volume to succeed in this space at the prices they’ve put forth.
With the exception of Goods, I don’t see any of these businesses being material to Groupon’s revenues in the next 12 to 18 months.
At a town hall meeting with employees, Groupon’s Andrew Mason reportedly said, “We’re still this toddler in a grown man’s body in many ways.”
And like a toddler, Groupon is sticking its hands everywhere; it has no idea what it wants to be when it grows up. Here’s a partial list of the companies and brands that Groupon is trying to compete with: LivingSocial, Amazon, Google, Expedia, Priceline, Hotwire, PayPal, Square, Verifone, American Express, Visa, MasterCard, Fab, Woot, Facebook, OpenTable, Mindbody Online, Envision Salon, First Data, Costco, every newspaper, every Yellow Pages.
Groupon’s investors were counting on the kind of stratospheric growth that the company was experiencing before its IPO to propel its stock price. So far, the trajectory has all been downward.