Friday, July 27, 2012

Groupon, Facebook Hit All-Time Lows; Why Groupon Can't Win in Japan; Zynga Implodes!

Even though Facebook met expectations for revenues today, their shares slumped to an all-time low after-hours trading.

Facebook hit Wall Street's bullseye on earnings and revenue was a slight beat but the stock fell below its all-time low of $25.52 a share in after-hours trading as worries about its future growth persist.

During regular-hours trading, Facebook shares fell 8 percent. After the earnings announcement, the company's shares initially rose then pulled back, falling below that all-time low. 

The company posted second-quarter earnings excluding items of 12 cents per share on revenue of $1.18 billion.

Facebook posted a net loss of $157 million, or 8 cents a share in the second quarter, due to hefty stock compensation charges related to its IPO, compared to net income of $240 million, or 11 cents, in the year-ago quarter.

July 26, 2012

The fall in Facebook shares might be a bit of a surprise (not really when you understand that the shares were grossly overvalued at its IPO price of $38 a share; they should have been about $9). And, still, today's price at $26.95 is about 300% overvalued; also, let's not forget that recent data shows that 40% of all Facebook users are Spammers.

The one slump that shoudn't be a surprise, but still is, is Groupon. Why? when the Dow skyrockets $211 (1.67%) on flimsy "news" that Mario Draghi, president of the ECB, says he will "Do what's necessary to maintain the Euro".... (Ahem... Where have we heard that before?) Yet still drops 8.7%, now that is a jaw-dropper.

It's only end July and Groupon hit its all-time low at $6.61. At this rate, when I seemed grossly pessimistic and said, "Groupon will hit $5 by December 2012" way back in November 2011 (when the shares were at $23.32) it seems those predictions are grossly over optimistic today.

Will Groupon hit penny stock status soon? I think in the next 12 months, that is highly likely if they don't go bankrupt first. 

Why Groupon in Japan Can't Win

There is another company doing the same business as Groupon in Japan but they make it work.... Well, let's say it works better than Groupon does. That company is Recruit with their Pomparade coupon service. 

Why can Recruit make Pomparade work (or, at least not lose millions of dollars)? Simple. Groupon sells one product: a Spam mail based coupon service. Recruit sales people sell at least a good two dozen services (along with their Spam-based coupon service). 

Groupon cannot afford to place 600 boots on the ground and sell just one service. The costs of running a sales force like that are way too high. Recruit corporation, on the other hand, already has a high and very well respected market profile in Japan. Recruit already has as 30,000 sales people running around selling ads in free magazines (of which Recruit dominates the market) like Hot Pepper, R25 (and a bunch others). Recruit also has Pompare, Keiko and Manabu, ATND and the list goes on and on...

The kicker for Groupon? Recruit has a "subscription" service that only costs business establishments a mere ¥80,000 a month (about $1000) to advertise across the board in several Recruit publications (and that includes coupons, etc.) If you are, say, a restauranteur, you have your hands full trying to make your business work; you haven't time to deal with new people and, especially, new internet "stuff."

The Recruit salesman already has an excuse to see and visit businesses that have the where-with-all and capacity to spend on advertising. The Recuit salesman already has a relationship with the store owners and managers. The Recruit salesman has an arsenal of products and services that he can offer to various businesses... They already have a good name and reputation. 

The name "Recruit" is a door opener.

So when a new sales person comes in on a cold-call and says "Groupon," I'd venture to say that a very many people say, "No thanks!" or, "Recruit handles all my stuff." Or even worse, "Grop-what?!"

That's not to say that Groupon's service can't work or cut out a market share, it can. But not the way it's set up in Japan now.

I mean, think about it: How can Groupon afford to put all those boots on the ground and compete with Recruit when they sell only one product and the Recruit sales people offer two dozen? They can't.

Groupon's only hope is to be bought out by another company in Japan that offers other services. The logical choice is Recruit. But, as  said, Recruit already has Pompare... And, I'm not too sure Pompare is doing great guns either.. Maybe the Korean company G-Market?

Perhaps if Groupon had enough market share to seem a threat to Pompare, Recruit would consider buying it.... But, it seems, that Groupon in Japan has dropped off the map...

Maybe Groupon itself, world wide, is about to do the same.

Zynga, the Facebook game is also doing VERY poorly and this might bode ill for Facebook too: In Play: Virtual Farm-Backstopped Default Delay Securities Launched After Zynga Implodes - UPDATE: ZNGA is down 40% now, trading with a $2 handle:

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