Now That We Have The Facts, Are There Any Groupon Bulls Left At All?


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The facts:

  • Groupon is low on cash.
  • Retailers are asking for better deals.
  • In mature markets, subscriber numbers are going up while Groupons sold go down.

Are there any Groupon bulls left?

The answer is yes, if you set the bar for what a “bull” believes Groupon can be worth somewhat low.

For example, if a Groupon “bull” is someone who still believes the company was smart to turn down Google’s $6 billion offer last fall, then yes, there are still Groupon bulls.

One person in the industry – a competitor, actually – just told us he feels bad for the Groupon people because the three-year-old company is going to IPO at a $10 billion to $15 billion valuation, and everyone is going to say its a huge disappointment because it wasn’t $30 billion.

This person said it’s true that Groupon is losing market share to competition, but that stories of margin compression in the space are overblown.

He also said that what Groupon sells to merchants is still a fundamentally useful product for all parties involved: merchants, customers, and Groupon.

One problem is that merchants and the reporters that talk to them sometimes forget that a Groupon offer is just another type of advertising. It’s a tool to get people in the door so the merchant can show them how great they are.

“When a restaurant does a deal and 100 groupons are sold and no one comes back, that’s not a Groupon problem that’s a restaurant problem.”

This person says that smarter, quality retailers get this, and tend to retain offers providers if they can get the right crowd in the door.

That’s good for Groupon, which, by the way is still growing like gangbusters.

Anyway, what’s becoming clear is that there is a business in Groupon’s business, but it’s pretty clearly not winner takes all – and that limits Groupon’s upside.

So maybe it won’t be eBay right away.

I just asked Henry – who just dropped the “Groupon is running out of cash” bomb on us – about all this.

His answer:

Oh there’s definitely a major opportunity there, assuming they can make the transition…to much slower growth [and] profitability. They just need to radically cut marketing expenses and clean up cost structure. But that takes time and costs money. And it will result in growth hitting wall.

Amazon went through exactly this transition in 2000. It was extremely painful, and they almost went bust. But amazon had bigger cash cushion, because they raised $1 billion at peak and didn’t pay it out to themselves