Sunday, April 22, 2012

Groupon's Hindenburg Disaster! Japanese Women Don't Like Groupon!

...Maybe not as fast as the explosion of the Hindenburg, maybe more like the sinking of the battleship Yamato...

I said I wouldn't write anything more about Groupon until its stock price hit the penny stocks range, but today I can't resist. Please forgive me as I childishly pat myself on the back. In November of 2011, I predicted that Groupon's share price would fall under $5 (USD) by December 2012. Please refer to: Groupon Stock Holders! Head for the Exits!

In what, I'm sure will be the second to last post I ever make about Groupon, and how much of a dog company I think it is (the last post will be a "I told you so" when Groupon becomes a penny stock), I'd like to show you Groupon stock performance over the past two days.
Pretty shocking stuff. Especially if you own shares in this company!
On Monday, Nov. 21, 2011. The Dow Jones Industrials (DJI) had a bad day dropping 249 points or -2.1% to finish at 11,454. The NASDAQ Composite Index (IXIC) closed 1.92% lower at 2,529.14. On the other hand, Groupon (GRPN) had an even worse day by dropping almost 10% and another nearly 1% after-hours!

Now, today, one of my favorite web sites in the world, Zerohedge, has an article that is even more brutal than I have been. Please refer to: The Poop on Groupon:

Only half a year ago, Groupon was the talk of the town. It was the biggest, hottest IPO on the horizon,and it was the darling of the social media industry. Imitators were everywhere, but there was one giant that was far ahead of everyone else: Groupon.
Well, one glance at a stock chart will show you just how much the biggest, hottest IPO has been embraced since it went public. I offer you the following:

The writer also goes on and agrees with me that Groupon share prices will be under $5 by end of this year as he continues:
Bottom line for me is that Groupon's stock performance isn't a surprise to me at all. There will be hopeful "pops" in price along the way, but my opinion is that this thing is going to wither into sub-$5 territory within the year.
I seriously enjoy that sentence and chuckle when I hear, "Only half a year ago, Groupon was the talk of the town." It was. Everyone was talking about how great Groupon was. Excepting me and a few of my friends. Please refer to my post of January 21, 2011, Is Groupon a Sustainable Business? No.:
This all leads me to think that Groupon's business model is not sustainable. Massive discounting is not a long-term successful strategy unless you are Walmart... But Groupon is trying to tie up lots of small businesses. The small businesses cannot survive making these sorts of deep discounts. 
Sure, Groupon makes money and the customers are happy. But this has to be a win-win-win situation all around. How are the clients winning here? I don't see it. Businesses need good repeat customers with disposable income... Coupon clippers that only visit your shop because they got 80% off your sandwich do not strike me as the kind of people who will repeat when the price is back to regular. I mean, why would they go out of their way to buy from your place at regular price unless what you had was great? And, if it was so great, then you wouldn't have needed Groupon to discount the crap out of your product or service as word of mouth will do the job in this day and age.
This leads me to believe that most Groupon clients will be "one offs" - twice at the most. In November, 2010, the NY Times cited a study done that claims close to 50% of former proprietors said they will not participate again and that almost 30% lost money on the deal. 
So the problem with Groupon is that their business model seems flawed. A good business model would be a win-win for Groupon and the client. But, now, as it stands, only Groupon seems to win with these margins as the client cannot stay in business at those rates.... Also, Groupon's business model is not so unique and copy-cats are already popping up all over the place... What's going to happen when, say, Facebook or Google starts their own version? Probably Groupon will go the way of Netscape Navigator. Remember them?  
I should have added "Myspace" to that ending part but they hadn't gone belly-up in Japan at that time. Like I've said, folks, Groupon is a flash in the pan. It's a loser from the get-go.
They blew it in Japan from the very start and there was no way to recover from that. And, when it comes to this kind of business, if you don't make it in Japan, you don't make it, it's pretty easy to guess that this situation is the kiss of death. They will never recover here in this country as my friend, Koji Tanabe, the chief editor of Josei Jishin, the biggest, oldest and most read women's magazine in Japan told me, "Women in Japan don't like Groupon as their reputation is terrible." Read this and see why.
Groupon will never recover from this. They are heading into oblivion.

1 comment:

diego.a said...

The real problem is the small business owners who think: Wow! I'm working 18 hour days for razor thin profit margins. What should I do? I know! Offer coupons so I can work even harder to please cheapskate customers.

A lot of them should just close their doors and go back to the labor market. The mafia, govt, and Goldman Sachs is hiring... (Sorry for the redundancy.) Most of them would make more money off being a temp than running a business.

Maybe Groupon had a chance with digital goods. Something like Appsumo. However, even they have problems.