Bears have their claws out for Groupon IPO

7th June 2011

Pratley is worried, not just because Groupon is yet to make money but because of a calculation, it is making about future operating expenses.

Here is the key passage from his comment piece.

"The hope is that profits will appear once less has to be spent on acquiring new customers. As if to encourage this thought, Groupon has invented a measure called "adjusted consolidated segment operating income" in which costs that are "not indicative of future operating expenses" are excluded. On this basis, it made income of $81.6m in the first quarter."

Pratley is not the only recent critic.

Here the Wall Street Journal's deal journal blog looks at the practicalities of what Groupon offers and suggests rivals may be more effective at converting vouchers to business.

The blog questions whether Groupon's tactic of offering lot of deals to a large email subscriber base is what counts or if the number of deals converted is a better measure.

Seeking Alpha asks is the IPO valued and overhyped here.

However the Chicago Tribune points out that the deal will lead to the creation of three new billionaires.

Here CNN notes the irreverent approach to the group's IPO document with Andrew Mason suggesting is his letter to potential investors that ‘life is too short to be a boring company' but the website also reports on more sober financial disclosures. "Most of the $1 billion Groupon raised last year went to cash out company executives and early investors, who sold off some of their holdings for $31.59 per share. Andrew Mason collected $10 million from the sale, and ex-CTO Pelletier took home $8 million. Funds controlled by co-founder Eric Lefkofsky cashed out a whopping $319 million," it reports.

It certainly looks like a lot of analysts and journalists think investors would do well to read beyond the jokes before committing to buying shares.

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31 thoughts on “Bears have their claws out for Groupon IPO”

  1. Anonymous says:

    Shaun – a slight aside; the Franco/German discussions on a “core EZ”…in two years both the current actors may well be history. Is this dialogue (as seen from Sarkozy’s point of view) a smokescreen in that he knows full well the current and future position of France and by entering into these discussions aims to pull France out of the fire by riding on the coat-tails of Germany?

    1. Andy Zarse says:

      Think of it in these terms, if Germany and Merkel represent Champion The Wonderhorse, then France and Sarko represent Willy Carson.

    2. Anonymous says:

      Hi Ray

      I think that the French strategy does involve this yes. The clearest example is where they want to use the EFSF to recapitalise Europe’s banks which would involve quite a bail out for Soc. Gen, BNP,Credit Agricole etc…

  2. I notice that the new Greek Prime Minister never appears to have actually been elected to anything and I did check this so I believe it to be true. Er,ahem, whatever happened to democracy? Has the new proposed Italian Prime Minister Mario Monti been elected either ?

    For the bankers, by the bankers dear Shaun. 
    Until the serfs rise up with pitchforks and erect public guillotines. 

    1. Zak says:

      Hey hang on… but surely it was democracy in action that got us into this mess in the first place? We’ve been voting in the same people with their promises of lower taxes and more spending for decades. No electorate has ever, (or ever would imho), vote for higher taxes and less spending. So maybe the only way to govern this new world order is to impose your will on the masses and to hell with the consequences?

      Legitimate protest in the western world has been legislated and regulated against to the point of being a completely pointless activity. Anything remotely disruptive is made to look extremist by the media and usually ended by the use of force by government authorities. It is difficult enough to hold a protest banner in the air in most major western cities, let alone a pitchfork!

      So the authorities have removed the safety valve of legitimate protest from the top of the pressure cooker and are now in the process of stoking the fire underneath by imposing financal hardship on millions.

      Well… They that sow the wind, shall reap the whirlwind.

      1. Drf says:

        Hi Zak, but surely it was sham “democracy” – not real democracy. Most EU local “governments” have been “elected” by a distinct minority of the electorate for some long while, due largely to political manipulation. You thus cannot blame democracy in essence for our present plight. If you go back to the model of Plato you can where we have gone wrong?

        1. Zak says:

          Hi Drf, ofcourse its “sham democracy”.
           
          …but that does not change the thrust of my argument – that in general terms an electorate has and never would vote for anything other than getting more spending for less taxing as long as someone with apparent authority is offering it.

          Its only natural after all to want more for less & generally speaking the electorate seem to have been gullible enough to believe it was possible to keep on getting just that, forever.

          1. Rods says:

            I accept the argument that political parties gain votes, by promising the impossible, but not everybody is deceived. Some parties gain votes by being a little more credible by promising a bit less of the impossible! They all use excessive spin with smoke and mirrors to deceive the electorate. I don’t believe any major political party in the UK has any credibility of any kind. Which is why politicians are the only class of people in society that make banking and selling property look like honorable professions!

            It comes down to the saying:

            You can fool some people some of the time but you can’t fool all of the people all of the time.

            The challenge NONE of the Western world politicians are up to facing is that of the BRIC and other developing nations exposing our big Government, high cost base, high wage and high welfare societies. We don’t create enough wealth to protect the living standards to which they / we aspire to cover all of this government and personal spending, so government and people have borrowed excessively to make up the difference and we can all see where this slow train crash is heading.

          2. Zak says:

            Hi Rods, What you say about UK politics is so true. You can vote for one or the other, but you get pretty much the same result regardless. I guess thats yet another angle on what Drf said earlier about “sham democracy”.

            Ofcourse, you dont need to deceive everybody, ( not even some of the time =) ). Only deceive enough to make your mandate appear to be legitimate.

        2. Jacqui says:

          Small government is the answer, then you are not voting for handouts.

      2. Anonymous says:

        Zak – good points. Have a look at the discussion that Kim Stephenson and I have been having on this site concerning the meaning of “capitalism” and how to deal with the protest movements. You may find it interesting.

      3. Cwappy says:

        Exactly, this mess is because politicians spend OUR money to get themselves re-elected. 

        One thing i have not seen raised as a cause for the current Euro and global mess is the synchronisation of countries; previous independent Euro economies could rise & fall independently thus aiding each other to stave off the downturns.  This is gone under a single currency.

        Similarly, the alignment of the electoral and economic cycles; politicians create booms to suit the electoral cycle (see above).  What we are creating right now is a merging of electoral cycles across Europe; in 5 years time the entire continent will be subject to political boom-priming….and subsequent bust.

        1. Anonymous says:

          Hi Cwappy and welcome to my blog.

          You make an interesting point. Would some of the Euro countries be at different points in the economic cycle right now if there was no Euro? It is certainly possible but of course we will never know for sure.

          The irony for the Euro zone is that right now we are getting signs of the sort of economic convergence that they hoped for, the problem with that is that it is at a trough of the cycle rather than the hoped for peak or boom

  3. MajorFrustration says:

    Rather than pussy foot around with vain hopes and inept political leadership lets just take the “hit” on sovereign debt; at least that then gets us back to financial reality – from there its a workout.

    1. Zak says:

      … but if you do that then the banksters will lose a few quid… cant happen… wont happen.

      Wont happen, that is, until there is no alternative. But by then the economies of the world will be so screwed up that they will take everybody else down with them.

  4. Rods says:

    If the banking and sovereign contagion puts France and Belgium into the Southern European club will they be known collectively as the FIBPIGS in the best traditions of Greek financial reporting or the BIFPIGS where France likes to throw its weight around in Europe and on the world stage?

    1. Anonymous says:

      And I’d like to coin a term for the Eurozone funding nations – Fangless = Finland, Austria, Netherlands, Germany, Luxembourg, Estonia, Slovakia, Slovenia

      Their politicians are toothless in the defense of their taxpayer’s money and the no bail out clause within the Lisbon treaty.

  5. Drf says:

    “Last night I looked up what the difference between France’s ten-year
    government bond yield and the UK equivalent was one year ago. It was
    0.27% and France’s was lower. This was the typical realtionship in the
    “Euro” era with if anything the gap being higher. Why am I making a
    point of this? Well last night the same yield relationship had France at
    1.24% higher!”  But surely Shaun this is only due to the current dire manipulation of the MPC and BoE?  Once the markets wake up to the sheer level of UK debt and the failure to cut real public spending they will turn. I find it increasingly difficult to understand why that has not happened already. I am forced to the conclusion that the only reason it has been delayed so long is fear – fear of the large-scale losses which they will occur in the Financial markets once the reality of the UK’s position is faced.

    1. Anonymous says:

      Hi Drf

      The actual impact on UK Gilt (government bond) yields from QE is unknown and countries without any QE programme have seen drops in their yields too. In the UK it is the Bank of England which opeartes the programme and also gives us estimates of its impact so there is a big moral hazard there!

      On the other side of the coin there has been something similar in Greece as so much of her debt has been bought up in a QE like operation but prices have plummeted and yields have rocketed. As we stand she issues no bonds at all (only short-term debt) and what she has are directly bought by the ECB and via various programmes indirectly bought (for use of collateral at the ECB) but it has done no good at all except lose money for the ECB and Euro zone taxpayers.

      So QE has probably helped in this regard but in my opinion is a very long way froma full explanation.

  6. JW says:

    Shaun, I know the UK is not in the EZ, but if it was the picture you paint of France would be twice as bad for the UK.
    The speculators who have shorted Bonds, CDS and the Euro will push and push as long as they think they can make millions out of this. Its no coincidence that most of the hedge funds are located in London, so if they can drag France into their ‘sport’ then so much the better.
    However once the ‘fun’ is completed one way or the other with the EZ its absolutely certain the UK is next.
    Then the next stage of the ‘western depression’ will almost be completed. The last stage is the payment of all these socialised costs, be they austerity, debts or inflation; thats when the likes of you and me become noticeably poorer. It wont matter then which side of the channel we happen to live in.

    1. JW says:

      Shaun, if anyone is under any false , hopeful thoughts about where this is heading, please read the attached link about Iceland ( and they supposed to be OK outside the EZ!)
      http://www.nakedcapitalism.com/2011/11/iceland%E2%80%99s-new-bank-disaster.html

    2. Anonymous says:

      Surely this is a reason for the UK to balance the budget and avoid the costs of being classed as a high risk debtor.

      Yes, I know it’s the wrong part of the economic cycle to be cutting, but that is Brown’s fault for borrowing heavily during the boom.

  7. Critic Al Rick says:

    Hi Shaun

    Nevermind ‘Has Democracy ended in the Euro zone? When did it last function reasonably well in the UK?

    To my mind a General Election has degenerated into a choice between different sets of Parasites’ (rich, poor and intermediate) puppet politicians. A Prime Minister has degenerated into a PR person between the hoi polloi and the real ‘powers that be’. Most of us alive today have probably never experienced anything close to true Democracy, but just maturing Govt by Parasites for Parasites. A GE may change the puppets; it doesn’t change the rulers any more, if indeed it ever properly did.

    Throughout the West, Parasites are killing their Hosts (Middle Britain in the UK).  
     
    When enough people realise how much they have been betrayed and ‘sold down the river’ by politicians ‘feathering their nests’ there will be Big Trouble; pitchforks and guillotines in Walt Kowalski’s parlance.

    1. Drf says:

      Hi Critic Al Rick, I agree entirely.  What you have to then ask is who is it who is actually in control, and calling the shots; and who is it controlling these puppet politicians?  I fear the answer to that question is not a pleasant one, and sadly the truth will soon be revealed. Most will fall for the new confidence trick then implemented, but things will be much much worse as a result, rather than better, and there will be not even a semblance of democracy. 

  8. Hi Shaun,

    I’d perhaps be a bit more careful of criticising other countries for acting in an anti-democratic manner if I were you.

    First, Italy and Greece are just doing exactly the same as the UK did in October 1963 when the unelected Alex Douglas-Home became Prime Minister. Also, in more recent times it is arguable that neither John Major nor Gordon Brown had any popular democratic mandate when they became British Prime Ministers.

    Second, you seem to overlook that the essential characteristic of a Prime Minister is that they govern by dint of the support from duly elected representatives as opposed to a President who holds a direct democratic mandate from the population. Your complaint would logically seem to imply that any country without a directed elected executive President it is intrinsically undemocratic which is a highly questionable stance.

    If anything, I think the recent actions demonstrate that elected politicians can (in extremis) manage to put party political considerations aside and act in the national interest. That could be construed as a strength of the systems of democratic representation rather than just as a weakness.

    1. Zak. says:

      “If anything, I think the recent actions demonstrate that elected politicians can (in extremis) manage to put party political considerations aside and act in the national interest. That could be construed as a strength of the systems of democratic representation rather than just as a weakness.”

      Surely the only act possibly seen as being taken in some semblance of national interest and self-sacrifice in recent weeks was when G-Pap offered the Greek electorate the chance of a referendum on further European bailouts.

      Such an attempt at introducing democracy into this crisis is far too dangerous for the dictators of Europe, struggling to keep a lid on the disaster they have created. This lesson was learned when the Irish dared to say no to the Lisbon Treaty. Allowing the people of Europe any say what-so-ever in this crisis has been avoided from the very early stages & MUST be avoided at any and all costs.

      So rather than take a chance that the Greeks might do what was good for Greece, the dictators, quite openly, forced the Greek Government into submission by guaranteeing the collapse of the Greek economy if they dared to go ahead with G-Paps plan for a referendum. They simply stated they would withold any further assistance. Ofcourse the Greek Government then had no choice but to bend to the will of their paymasters.

      Whats worse, and slightly scary, is that the dictators did it openly and without reservation. They threatened to collapse the economy of a fellow european member country and yet the worlds media reported it like it was the natural way of things. How on earth did we come to this??

      Sorry, but I fail to see any strength in the systems of representation in Europe at present… democratic or otherwise. But I do agree with you Mark, the UK is probably among the least democratic of them all.

    2. Hi Mark
       
      Actually I have my criticisms of UK democracy too as I think that there were issues with the promotions of both Gordon Brown and John Major. However differences between them and what has happened in Italy and Greece are/were.
       
      1. They were both major figures in governing parties which had won an election
      2. They had stood and been elected in their own constituencies
       
      So in my view a Greek equivalent would have been a promotion of the Fianance Minister Venizelos, still wrong is some ways but better than what has taken place.
       
      Even Alec Douglas Home then stood in a by-election as I understand it whereas I gather that the first move of Italy’s new leader has been to accept the title of “life senator” which has as one of its features immunity from prosecution.
       
      As to the “national interest” that is capable of different interpretations and rather than in effect being imposed it is better for there to be a democratic mandate.

  9. Critic Al Rick says:

     Hi there Drf

    You’ve got me intrigued now. I think I know who is calling the shots but I don’t think I am aware of an impending new confidence trick – what do you think it will be? So, it sounds like conspiracy as opposed to incompetence; yes? Or is it incompetent conspiracy?!

    1. Drf says:

      Hi Critic Al Rick,  I am afraid I do not know who it will be, but practically everything today in leadership or politics is a confidence trick of one sort or another; it’s all a bit like so-called confusion marketing. I suspect it will be a new quasi-global leader who will promise a form of Utopia out of the ruins which present politicians have perpetrated when economic collapse finally occurs; and although it may start with perceived promise he will be soon emerge to be a dictator worse than Adolph Hitler.  This seems to be the pattern with humanity. 

  10. Sean Fernyhough says:

    I notice that Mario Monti is a member of the board of international advisers for Goldman Sachs.  Recalling Goldman Sachs’ role in hiding Greek government debt through derivatives, this is quite ironic.

    “Even our Anglo-Saxon friends are now convinced that we must have reasonable rules” – Sarcozy was wrong about that too.

    1. Anonymous says:

      “A great vampire squid, wrapped around the face of humanity, relentlessly jamming its blood funnell into anything that smells like money.” (Matt Taibbi)

      That quotation just gets better over time..

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