Groupon Is a Straight-Up Ponzi Scheme

Discussion in 'Stocks' started by Pekelo, Jun 12, 2011.

  1. Pekelo


    A very interesting and convincing argument:

    "The model is only sustainable if it pays off for local merchants — and to justify Groupon’s current size, it now must pay off for local merchants ubiquitously and flamboyantly. If not, Groupon is mostly a Ponzi scheme."


    "This is why Groupon must ultimately implode — there just aren’t that many business that fit either of these descriptions."

    Make sure you read some of the comments before you chime in....
  2. m22au


    I think the term 'ponzi scheme' is often thrown around to create enough sensation to draw people's attention.

    I don't think Groupon fits the definition of a ponzi scheme, however I agree with the author's overall theme: that the company's business model cannot experience such high growth for much longer.

    If (most likely when) the shares trade a ridiculous price in the first few days of trading (like LNKD), I'll be looking to short / buy puts / sell calls.
  3. In my small business a new customer by direct mail costs $100.
    Facebooks costs $80
    Google ad words doesnt work at all
    Print doesnt work at all >500
    With Groupon - it costs $20-30.

    If you generate enough repeat business from the new customers - the model works. Its a compelling model for us but the crux for retailers is that repeat biz.. I understand it doesnt work for most restaurants but at the same time if the food and service is shit - that has nothing to do with groupon. ANd a lot of the groupon guys are wankers just looking for a deal - but that is part of every promotion...
  4. Pekelo


    Kind of agree, but here is an interesting fact:

    "In January, Groupon raised $950 million. By the end of March, it had $209 million in cash.

    What happened to all that money?

    The company’s IPO filing spells that out: Almost all of it went right back out the door, to employees and early investors.

    The details: Groupon raised a total of $946 million in two funding rounds last winter. It kept $136 million of it help run the money-losing company. The remaining $810 million was paid out, via stock purchases, to CEO Andrew Mason and some of his backers, including Eric Lefkofsky, and, notably, the Samwer brothers, who sold their CityDeal company to Groupon in 2010."

    " This wasn’t the first time Groupon had raised money and taken cash off the table. In April 2010, the company raised $130 million, and handed $120 million to many of the same people."


    So it looks like early investors getting paid like there is no tomorrow and the company is left with a big nothing... In the comments section Ponzi and scam is mentioned several times....

    Extra info on Groupon:
  5. Groupon isn't a ponzi scheme, it's just a bad business model.
  6. Pekelo


    You can have BOTH, a Ponzi running on a bad (unsustainable) business idea. To work for a while people/investors just doesn't need to understand the underlying business and the unsustainable nature of it.

    So yes, in a way it is a Ponzi, it pretends to be a good business model and keeps sucking in capital, pays that off to the early investors and eventually lots of people and VC will lose money on it....
  7. I'm sure the VCs know whats up....

    But just in case.. they've been using russian money...
  8. I tried the groupon deals here in Toronto.

    Pek's right about some vendors - the restaurants that offered deals thru groupon seems not happy to stay with them to offer more deals as new deals show up in other competitors' sites.

    On the other hand, service based vendors seems to continue (at least for some time) offering deals thru groupon.

    Margin difference?
  9. I hear this from a lot of SMBs that have used groupon: the groupon customers are one-and-done. Can you afford 20-30$ each time the same customer comes in just to keep them coming back? That's a better comparison...
  10. Pekelo


    Yes, it is a better deal for services, but there are disadvantages for that too. Old costumers get pissed off. Suddenly it is harder to book the service, longer waiting period and the groupon users even paid less! Old costumers would like to see the same appreciation for their continuous support of the service, not the different treatment for the same....

    Another thing is that competition is already there and really easy to start. Back when Amazon started, to start a company like that with storehouses all over the country required huge starting capital. So competition was limited by it. To start a similar website like Groupon it only takes a few employees and a webserver...

    Going back to the Ponzi charge. I guess there are 2 Ponzis. One where there is no service or product whatsoever and it is a straight out fraud. The other kind start out as a normal business (just like Madoff) but then the owner realizes that the business will not run as it was intended, and he turns it into a ponzi. Groupon is the later kind...

    Let's repeat, almost 1 billion was taken out by early investors already. And the website is losing money. If they believed in it and wanted it to suceed, shouldn't they have left the money in???
    #10     Jun 12, 2011