Back in November of 2011 when Groupon was going public there were generally two camps on the subject. One side that felt that the company was a truly hot commodity and would prove detractors wrong by a strong initial public showing and a strengthening business model. The other was one that was skeptical of the long term viability of the deals business model and felt that the whole thing was a well hyped house of cards. I wrote at the time of Groupon’s IPO.
How this looks six months from now will tell the tale of whether Groupon has been what it has claimed all along (worthy of even a much higher valuation with talks at one point placing it at $30 billion) or whether it has indeed been just an elaborate Ponzi scheme that will create one of the most infamous business stories of recent memory.
Well, here we are a mere five months from that point and Groupon is not doing so well. Revised forecasts, the lingering history of sketchy accounting practices and a smarter business world that sees the real downside potential of running a Groupon for their business paints a picture that brings mentions of trouble and, gulp, lawyers. Venture Beat wrote yesterday
Groupon’s stock has been falling since it revealed on Friday that it was revising its first quarter earnings to reflect a larger than expected loss. With its spotty accounting history, Groupon is now a juicy target for securities lawyers representing investors, who believe the company may be liable for the losses their clients have suffered since Friday. The stock is currently down about 12%.
Groupon’s stock price closed at $15.27 which was a loss of just shy of 17% for the day and well off the IPO opening performance of $28. In other words, it’s not looking so great for Groupon right now. Since every business has its ups and downs it’s not fair to simply say that Groupon is in its death throes. What is fair to say at this moment is that those who invested and stuck around are pretty upset. If shareholders feel they have been cheated and lawyers are called in, all bets might be off for Groupon.
It’s this next statement from the Venture Beat article should really give pause to anyone who thinks Groupon’s model is the wave of the future.
When it filed to go public with the Securities and Exchange Comission, Groupon’s accounting raised some red flags and the company eventually revised its financials with the SEC before its IPO. Considering all the scrutiny, the news on Friday that it’s auditor, Ernst & Young, said the newfound errors revealed ”material weakness in internal controls” piqued the curiosity of lawyers.
My interpretation of that statement is that despite accounting practices that caused delays of this IPOit looks like Groupon is STILL doing something sketchy with how they measure their business. Once bitten twice shy? Fool me once shame on you, fool me twice shame on me?
I would hate to see this turn into one of the bigger scams of recent business memory. Maybe it will, maybe it won’t. Right now, however, it is not looking very good for the future for Groupon. Accounting practices and claims of being surprised by bigger than expected holiday returns aside, some of the worst fears of those who were scoffed at Groupon by claiming that it was a weak model at best and an elaborate Ponzi scheme at worst, are looking quite real right now. Take a look at this post for some more detail if you so desire.
Any thoughts on Groupon and the whole deal space in light of these recent developments? Are you one that thinks this model has legs or one that thinks it’s running on square wheels? Let’s hear your thoughts.
UPDATE: Add on this claim from the Wall Street Journal that the SEC is probing Groupon and this starts to really feel like a bad deal.