by Lawrence Meyers | March 3, 2014 6:00 am
Why do you still have Groupon (GRPN) stock in your portfolio? It’s nothing more than a sucker’s bet, dipped in snake oil, rolled in a crunchy layer of healing crystals and wrapped in magnets that re-align your aura.
Were I to walk into ABC’s Shark Tank with Groupon, Mr. Wonderful would say, “I’m going to do you a favor. I’m going to spray gasoline all over you and light you on fire, because that’s what you want me to do with my money. This isn’t a business. It’s an idea.”
The success of GRPN stock is attributable to one thing: It got to the market quickly, the market caught fire, and GRPN managed to go public before anyone got wise.
The single biggest problem is that there is no barrier to competition. Ever heard of LivingSocial? How about Amazon (AMZN) Local? Google (GOOG) offers? Scoutmob?LiveDeal? Larry’s Wacky Discounts? Well, maybe not that last one, but you shouldn’t rule it out. Even Mr. Wonderful can break into this market if he wants to.
Maybe you don’t agree. All right, then try to justify how GRPN, which has been in business for several years, still cannot turn a profit. Revenues grew 20% year-over-year, but the company still reported a loss of $1.7 million.
And don’t talk to me about one-time charges. GRPN stock has generated more than $4 billion in revenue since 2009 but still has a net loss of more than $800 million since then. All the one-time charges in the world won’t change that. That’s because, again, it is not a business.
Still, Groupon thinks it can grow via acquisition. The company just wrote off an $85 million investment in a Chinese venture. Now, it has gone and paid $43 million for an online fashion retailer that itself had an operating loss of $30 million last year. How is that going to help?
Look, in early 2011, GRPN stock was doing $668 million in billings. By Q3 of FY12, it was up to $1.2 billion, but that annual increase was only 5%. Billings per customer were falling at the same time. If you look at the financials for GRPN stock, you’ll see it costs GRPN more and more capital to sell its deals … only to generate decreasing revenue from each customer.
The kicker, to me, is that GRPN insiders have been selling shares like mad. You can’t always draw conclusions from insider sells, especially if they are modest. However, in last year’s Q3, the ratio of insider sells to buys was 100-to-1. That included a venture firm that dumped 23% of its shares.
Former CEO and co-founder Andrew Mason dumped more than half his GRPN stock last year. The new CEO holds — ready? — a mere 31,500 shares of the GRPN stock. That is not a vote of confidence from management, and it’s far beyond what anyone who truly believes in his company would do.*
Why are you still holding GRPN stock? Sell it. Otherwise, you’ll be left holding a bag of snake oil and a plummeting stock.
*Editor’s Note: Eric Lefkofsky holds 107 million shares indirectly through a vehicle called Green Media, as well as 800,000 shares of restricted stock that begin vesting in August 2014.
As of this writing, Lawrence Meyers was long AMZN and GOOG.
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