I tried to warn you here at Forbes and when I was on CNBC�s Closing Bell with Maria Bartiromo before this deal was priced. This is a prime example where a simple reviewof the offering prospectus told you loud and clear to avoid this stock at all costs. No matter that Goldman Sachs� Lloyd Blankfein couldn�t get on a plane to Chicago fast enough to pitch his firm to underwrite it. And then there were 10 other underwriters clamoring to get into the deal. It is simply a sign of how bad the times are. All 11 should have refused to underwrite this deal at all. The principals were busy extracting hundreds of millions for themselves from share sales in the last private round. The company needed the money for its own coffers but it went to them instead. They totally gamed the system for their own largesse. Two COO�s quit in the last several months, also not a good sign of lasting value.
There has been extended coverage of a poor woman in England who lost over $100,000 when her cupcake store was flooded with people with their Groupon coupons and she had to sell her wares for amounts far below her costs. She�s just one of the 95% who never repeat using Groupon�s services because they realize what a bad deal it is for them. They give half their revenues to Groupon who then takes its good old time paying them what they are owed. Most customers don�t come back but move along to the next cheap offer they can find for a similar service.
Without the offering, Groupon would already be bankrupt. Their model requires excessive marketing expenditures to maintain sales levels. They cut back on marketing in the third quarter to pretend they could show a profit but sales growth then slid to only 10%. If they had a good product, the company would grow on its own momentum and repeat vendor usage of their product. But that isn�t the case.
This has been an amazing round trip. The underwriters priced the deal at $20 on November 4th. It opened the following morning (late, I might add) at $28. In the first hour, it traded up to $31.14 and then began its downward fall. The decline was slow at first, then picked up steam in recent days when short sellers were able to finally borrow the stock. As of November 25th, 3 weeks after the offering, almost 3 million of a 35 million share float has been sold short. If you got some on the offering and didn�t flip it the first few days, it�s too late now. At this point, anyone who bought it in the aftermarket has had his/her clock cleaned. I hope that wasn�t you. At some point there is likely to be a violent short squeeze so shorting now is not without its own dangers.
What is it really worth? I have no idea but surely those 95% of holders who are locked up for another five months are hoping it is still worth something by the time they can sell their shares. My guess is some single digit number that won�t make Goldman Sachs, Credit Suisse or Morgan Stanley happy they had anything to do with this embarrassment other than the fees they got to pocket.
Joan E. Lappin CFA Gramercy Capital Mgt. Corp.
Neither Mrs. Lappin nor Gramercy Capital own any shares mentioned in this article.
In these turbulent investment times, put Gramercy Capital�s decades of experience to work for your portfolio. Contact us at info@gramercycapital.com.
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