Groupon (GRPN) Stock Woes: As Slumps, Groupon Needs to Completely Rebuild its Business

Groupon has some thinking to do, as any company would whose stock price has fallen 80% since it's public debut last November.

When a company's market value goes from $13 billion to $1.3 billion, some rethinking is clearly understandable. To top off its monetary woes (and possibly as a result of them) many of the companies top executives are leaving. There is also a very strong possibility its CEO and co-founder will be replaced very soon. Post-IPO management is always tricky but Groupon must be careful not to bury itself, even if it has already shot itself in the foot.

A little more than a year ago, Groupon was lumped together with the likes of Pandora and Zynga as technology-based companies to make a splash with their initial public offerings, all in the shadow of Facebook. One year later and Pandora and Zynga are worth less than half of what they debuted at while Facebook has lost over 30% of its value. It is tempting to say that these companies took advantage of the passing faddish buzzwords of “social,” “local,” and “tech start-up,” which led to an inflated opening price that they were not really worth. It is tempting as well as true, and Groupon took advantage of the same trend and had a similarly inflated opening price. It is for this reason that Groupon should not compare its current stock price to its opening price.

Since its IPO (initial public offering), numerous copycats of Groupon have debuted that copy its business model at the same time as its business model has been in use long enough to be tested, reviewed, and quantified. I believe this has led to Groupon's daily deals business model to be overthunk and expanded to the point of bulkiness at a time when it should be slimmer, so as to be more adaptable to a landscape that, while it helped create, is constantly changing. With its initial business model copied, Groupon expanded by offering an Amazon-like service where you can buy goods on sale directly from its website. This merely puts it head-to-head with the leviathan Amazon, while distracting it from its core daily deals business model that is currently under siege.

When Groupon first came out, it seemed like a relatively simple idea: have retailers pay to advertise their special deals (in the form of a download-able coupon) to Groupon members in the area, so that consumers can try the retailers product at a discount while retailers gain potential returning customers. I myself tried quite a few places I would never have considered otherwise because of a Groupon coupon. Some of these places I have returned to. Others, I have not. And therein lies the problem. There are conflicting reports as to the success of retailers using Groupon, but already many retailers are saying they won't use Groupon for the holiday season and many retailers in Europe are saying Groupon actually hurts them more than it helps.

While Groupon deals with all of this, people are comparing it to its opening stock price and assuming that Groupon did something wrong. Perhaps Groupon did nothing wrong, maybe the people that invested in Groupon early at such an inflated price did something wrong. Groupon should focus on its initial business model and its relationships with retailers rather than expanding into new territory. Moreover, whomever ends up being at the top levels of Groupon, they should focus more on developing and improving its model rather than just recapturing its stock price.

A high stock price and good business decisions often go hand in hand, but not always. 

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David Allen

Most of what people think is happening isn't actually happening. People should probably calm down. I'll talk 'em to sleep.

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