
Groupon Plunges as Board Members Reportedly Leaving - antr
http://www.thestreet.com/story/11514049/1/groupon-plunges-as-board-members-reportedly-leaving.html
======
chrisacky
Big fat I told you so (to anyone on HN I've predicted this to in the past)...

Board Member/Director leaves... and what this signals:

[1] Employees Confused.

[2] Investors are going to really pissed off.

[3] Stock is most likely going to continue to fall. (The signalling from this
step down is huge).

[4] It hints at possibility that the directors have had something to hide;
something has been discovered; they have been secretly pushed out; or they
have found out that something unethical has been going on in higher management
and want to distance themselves from the company. Put another way, jumping out
of a company when you aren't even pushed, when you are massively vested in
it's success pretty much signals to everyone that Groupon is a sinking ship.

If they haven't filed bankruptcy by 2013 I'd be mightily impressed!

I can't wait to hear what Rocky Agrawal has to say about this.

~~~
joering2
anyone would want to invent a time machine for a cool $5 billion dollars??
because that much Andrew Mason would pay you to get back to the table split
seconds before he said "no" to Google's "we will pay you $6 billions for your
website".

~~~
xxbondsxx
Rumor has it that Google got a look at their books during the negotiation and
cancelled the deal. They publicly gave the story of groupon denying Google to
allow them to save face and attract more investors

~~~
OzzyB
That's very unnerving if it's true, because, by going along with _"Groupon is
worth $6bn because Google offered that to us and we turned it down"_ , implies
Google had a hand in creating that extremely high perception before their IPO.

If Google did infact have the chance to look at the books (which I'm sure they
did), and then allow that "$6bn meme" to circulate -- well, that's _evil_
isn't it?

~~~
jacquesm
Just three letters for you: NDA.

To expand on that a bit: If google had made public what they thought they
found they would have been very much open to a lawsuit with some significant
chance of success.

Breaking an NDA in such a situation is unheard of, every investor is supposed
to make up their own mind and do their own homework before they decide to
invest or not.

Any legitimate concerns about this would revolve around the question of
whether or not groupon was forthcoming in their pre-IPO filings. If there is
any proof to be found with google you could try to persuade a judge to grant a
subpoena of people at google familiar with the deal, but google should never
by themselves reveal any of this.

So: no, not evil.

~~~
westicle
Although nothing preventing Google from releasing a statement saying they
decided not to buy Groupon.

If the story is true, it seems very strange that they wouldn't set the record
straight (obviously without breaching any confidences or disclosing anything
specific about Groupon).

------
AlexMuir
When a director with a lot to lose (Howard Schultz) leaves so suddenly, one
can guarantee that there's something coming which significantly threatens his
position outside Groupon and/or reputation. So much so, that he is willing to
piss off investors, employees and co-directors by upping and leaving.

I suspect that the writing is on the wall for Groupon.

I'm going to predict that it won't see 2013 without serious restructuring,
write-downs and possibly bankruptcy.

~~~
trotsky
For what it's worth, these two were both on the audit committee which was
criticized in the wake of the earnings restatements last month:

 _"Groupon needs a new audit committee with much more financial expertise,"
said James Post, a management professor at Boston University._

[http://articles.chicagotribune.com/2012-04-12/business/chi-g...](http://articles.chicagotribune.com/2012-04-12/business/chi-
groupon-accounting-problems-put-spotlight-on-board-20120412_1_groupon-
investors-for-aggressive-accounting-audit-committee)

~~~
ahi
I don't really buy that. If CFO and auditors are doing their job any
reasonably competent business professional can provide adequate oversight. If
the board member isn't capable of adequate oversight the problem lies with the
financial information they are being given, very rarely the board members.

~~~
trotsky
You're not really providing much oversight if you're only able to detect
problems when they're pointed out to you.

 _Enron's audit committee was later criticized for its brief meetings that
would cover large amounts of material. In one meeting on February 12, 2001,
the committee met for an hour and a half. Enron's audit committee did not have
the technical knowledge to properly question the auditors on accounting
questions related to the company's special purpose entities. The committee was
also unable to question the company's management due to pressures placed on
the committee.[59] The Permanent Subcommittee on Investigations of the
Committee on Governmental Affairs' report accused the board members of
allowing conflicts of interest to impede their duties as monitoring the
company's accounting practices. When Enron fell, the audit committee's
conflicts of interest were regarded with suspicion.[60]_

<https://en.wikipedia.org/wiki/Enron_scandal#Audit_committee>

~~~
ahi
I think Enron is actually a good example of what I mean. I maintain that any
generally competent professional can have any legitimate accounting practice
explained to them. "I don't get it, tell me where these numbers are coming
from," will pretty much suffice. Enron's audit committee simply failed to ask
the questions (due to laziness or conflicts). Enron's special purpose entities
were sitting in the SEC filings waiting to be found by anyone. As soon as the
WSJ reporters asked about them Enron started to implode. The SPEs did not make
sense and they fell apart without much more than "wtf?"

Needing financial engineers on your audit committee is a giant red flag that
your financials don't make sense.

[http://www.amazon.com/Days-Reporters-Uncovered-Destroyed-
Cor...](http://www.amazon.com/Days-Reporters-Uncovered-Destroyed-
Corporate/dp/0060520736?tag=duckduckgo-d-20) (Probably not worth the read.
Enron short nags WSJ reporters about WTF SPEs in Enron filings. WSJ finally
asks Enron and gets gobbledygook instead of explanation. Boom.)

~~~
trotsky
I think you make a good point, but it still leaves open the idea that groupon
may have made these changes to combat a (perceived) weakness in the committee.

~~~
crag
Nahhh... No one disrupts a company this much unless something significant is
coming.

Grab the popcorn folks, the fun is starting.

------
Alex3917
When board members quit unexpectedly like this it usually means they have
discovered that the management is doing something unethical and they don't
want to be held legally liable for it, which they would be if they stayed.
This is likely a sign that we're going to see another scandal or two coming
out of Groupon in the next few months, possibly one that tanks the company
completely. Wall Street knows this, which is why the stock took such a beating
today.

~~~
kin
Besides the occasional unethical sales methods by some of its employees, were
there any other scandals that I'm not aware of?

~~~
pyre
The 'creative' accounting on their initial IPO paperwork was a scandal of
sorts, but I don't think it left the IT blogosphere.

~~~
ssmall
They talked a fair amount about it on Marketplace, a public radio show about
business and economics. Still isn't exactly mainstream but its outside the
tech news circle.

------
nollidge
What I'm wondering: are any of Groupon's competitor's (AmazonLocal,
LivingSocial, Google Offers, etc.) more likely to succeed? Or is the business
model the biggest problem here?

~~~
suresk
I don't think the business model is quite as horrible as some make it out to
be, but it certainly doesn't seem to warrant a $6+ billion valuation for
Groupon and doesn't really bode well for some of its competitors. I see two
major problems Groupon is facing:

1) Limited long-term market

A lot of companies have had negative or even disastrous results from using
Groupon. It is clear that it isn't a good option for a lot of businesses, as
it can be very costly and a lot of the customers don't return. I see two
viable long-term markets for the sort of deals Groupon offers: 1) High-margin
businesses where most of the expenses are related to advertising, and 2) brand
new businesses with a big enough marketing budget to take a one-time hit to
get their name out. This is still a pretty big potential market, but I don't
think it is big enough.

2) Almost zero barrier to entry

Despite being called a "tech" company, Groupon appears to have very little
interesting technology, and there is almost no barrier to becoming a
competitor. More worrisome than the national competitors (ie, Google, Amazon,
and LivingSocial) are the local competitors, such as TV stations, newspapers,
universities, etc.. They already have established relationships with local
businesses and almost certainly have lower sales costs, plus they often don't
need the margins that Groupon does and can offer merchants better deals.

I see Groupon dying from fighting with a thousand other fish over a pond that
is a lot smaller than originally thought. National competitors like Amazon and
Google that can use other aspects of their business to lower acquisition costs
and/or increase the revenue per deal might have a shot at doing well in the
long term.

I can tell you one thing - as a Google shareholder, I'm really glad they ended
up not spending $5 billion on Groupon.

~~~
nikcub
> and there is almost no barrier to becoming a competitor

except user acquisition costs on both ends of the transcation, which are
ridiculous. i doubt there is a single small business in the USA that hasn't
had contact with GroupOn, or a single discount shopper who hasn't heard of
them through their marketing.

------
api
... and the poster boy for boiler room business philosophy in the startup
world implodes ...

------
obtino
It's like watching a train-wreck in slow motion. It's a pity that this stock
couldn't be shorted due to the lack of people willing to lend their holdings.

------
wpietri
I forget. What's the markup for Nelson's ha-ha noise?

~~~
div
<schadefreude></schadefreude> ?

------
rollypolly
Could this be the beginning of the end of Bubble 2.0?

I understand this is just one company, but what I'm wondering is if this could
have a domino effect.

~~~
huggyface
Groupon is hardly even a tech company, and their business model is one that
has been seriously criticized since the outset. There will be little
collateral damage from their decline.

~~~
calpaterson
Pets.com was not ostensibly a tech company either. Their business model was
also criticised. There was much collateral damage from their decline.

~~~
cube13
By that definition, Amazon wasn't a tech company, either. Remember that it
started purely as an online bookstore.

~~~
samstave
But online sales is made much more for books than pet supplies. The library of
pet supplies is nothing compared to the vast variety of books. So selling
books online with a good search and novel distribution model is what set
Amazon apart from pets.com

------
moocow01
I wonder if the true bubble is just the number of shady businesses run by
shady executives on shady accounting principles.

------
mikemarotti
Is it too late to think about shorting this stock?

~~~
antr
Current market cap (equity value) is $6.8bn, with negligible income. It'll be
interesting to see how much longer GRPN takes to trade at fundamentals.

~~~
infocaptor
They should have taken the $6 billion Google offered and still come out as
heroes

------
tedsuo
To what degree were people predicting the fall of pets.com before it happened?
Anyone remember? I think that's the key insight into how the fallout of a
groupon meltdown would affect the rest of the industry.

~~~
mkr-hn
Good place to start:
[https://www.google.com/#q=pets.com+bubble&hl=en&prmd...](https://www.google.com/#q=pets.com+bubble&hl=en&prmd=imvns&sa=X&source=lnt&tbs=cdr:1%2Ccd_min%3A1%2F1%2F1998%2Ccd_max%3A12%2F31%2F2002)

~~~
MortenK
That link lead me to a NY times article from december 2000 with the following
paragraph describing the height of the 1999 bubble: "Even the most traditional
brokers and investment banks set aside the notion that a company's stock price
should reflect its profits and urged investors not to miss out on the gold
rush."

That sounds eerily similar to todays climate.

------
janlukacs
we'll be reading the same about Facebook in a couple of years? most probably.

~~~
scarmig
Facebook is bubbly, but there's a world of difference between having your
value inflated by a bubble and what's effectively accounting fraud.

~~~
ljlolel
Groupon is definitely worse than Facebook, but still,
<http://www.jperla.com/blog/post/facebook-is-a-ponzi-scheme>

~~~
mikeash
Seems like any financial structure that isn't indefinitely sustainable gets
described as a "Ponzi scheme" these days. What that post describes isn't a
Ponzi scheme at all. The defining characteristic of such a thing is using the
money from new investors to pay returns to old investors, thus making the
investment appear legitimate. It's completely unrelated to Facebook
advertising.

Maybe their business model is unsustainable, but its nothing like a Ponzi
scheme.

~~~
fennecfoxen
I'm not even sure that their business model is unsustainable. The growth that
would be necessary to justify their current valuation is probably
unsustainable, mind you. But there's easily a good little business there. It
just happens to not be worth 7 billion dollars :)

~~~
mikeash
Same here. I was really skeptical of the claim that Facebook advertising isn't
worth the money. I think it's far more likely that it is worth the money if
you sell the right sort of thing, and this guy just moved in circles where
people didn't sell things that advertised well on Facebook.

However, the "Ponzi" thing stuck out at me much harder.

