I woke up this morning fully knowing that I would see this article soon. It was only a matter of when. Before I get started, I really enjoy reading SAI Business Insider, but I definitely have to respectfully disagree with Henry Blodget on this particular subject.
Here is the original post: "Hey, Groupon Haters, Analyze this: Groupon Breaks Even in Q3"
But Henry, if you challenge me in your post “So, analyze that, Groupon skeptics!” you had to expect this…
As Groupon is about to finally go forward with their delayed IPO, they have been doing all they can the last few months to put lipstick on the pig. It has been an all hands on deck effort to make the company presentable to investors. It’s typical of almost all intelligent companies before a major IPO, merger or acquisition, so it’s not surprising.
But break even is not that impressive. Sure it’s a drastic change from losing all that money, but if you turn off the spending faucets, it’s not all that difficult. In order to achieve break even, you need one paying customer to cover your costs and then you don’t spend any money.
Obviously that logic is flawed. It is very short-term thinking. Your company will not grow. You will have the one paying customer and pray he keeps paying.
That’s the problem with Groupon. Sure you can cut costs, and sure you can show some growth (because there are still delusional business owners who have yet to be burned by the glitz and glamour of the daily deal), but the problem is and always has been a flawed business model.
If I were to invest in Groupon any time in the near future, it would be because I am looking for explosive growth. I want the next Google. Groupon, with these rapid cost cutting maneuvers, looks more like a present day Intel than a Google IPO and certainly an Intel without a stable business model and many years of producing solid revenue growth.
These daily deal sites in their present form are bad for business. It is only a matter of time before the business owners see the light and the market becomes saturated. Granted Groupon probably has a a while before saturation, but from an investor standpoint, I tend to look a little further out than next quarter when they might show a profit.
I’ve been saying for a while (and I’m certainly not the only one) that the daily deal universe needs innovation. Yipit was a good step in the right direction, but the innovation has to be more than aggregating the same old deals. I think Foursquare is continuing to move in the right direction when they talk about Daily Deals 2.0.
Groupon seems like a company that has been scrambling for a while to try to extract as much money out of the business as possible for its founders and investors. Seems like they are trying to cash out while the going is still good. Regardless of what you think, just realize that break even isn’t all that impressive if it is a short term move at the expense of future growth.