Yesterday the daily deal marketer Groupon went public, with shares rising from $20 up to $31 in first-day trading. Even so, analysts have serious questions about the company, as do I. The business model is just not there.
I just read a story the other day that Groupon ranks last in digital media brand reputation (though I’m paraphrasing here – I need to find the source). There are plenty of horror stories from small businesses which have nearly lost their shirts due to Groupon promotions.
The bottom line, though, is that this market is still very young. Groupon itself is only a three-year-old company. There is nothing inherent to Groupon that makes it stick. There’s no unique intellectual property nor differentiating factor between Groupon and services like LivingSocial or some other upstart service.
“They have a real business. They can really make money. They have a really large first-mover advantage,” Wedbush analyst Michael Pachter said. “The downside is that it’s not hard to do what they do.”
No, it isn’t. In June of 2009, the company had just 37 employees doing what it does. Now it’s got over 10,000. And they’re doing what, exactly?
Groupon had a small float in its IPO, which in my mind raises a red flag. It also isn’t profitable, has a huge payroll, and plenty of competition.
This is one stock I’m steering clear of.
Update: US News’s Rick Newman offers a good analysis, backing me up.