The Groupon Pile-On

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It’s that time of year again, when the press smack around a company they were in love with only moments ago.

The most recent target: Groupon.

Why? Not because any of the company’s fundamentals actually changed, but rather because it’s cheap journalism with that magical elixir of wunderkind and controversy.

Better yet, it drives pageviews (read: revenue) for publishers. The only problem: it’s total bullshit.

The guilty? Pretty much everyone:

• In July 2011, Fortune praised Groupon’s hiring practices in a story, “Hiring Without a Net at Groupon.” How long did it take for the mag to kill the company? Less than 120 days, with  “Groupon IPO is hot, but its business prospects? Not.” Fortune didn’t stop there. When the stock hiccupped, it published, “Groupon plunges below IPO price.”

• Business Week accused Groupon of “propping up” its stock with an article titled “Groupon Value Propped Up With Lowest Internet Float in Decade.” The mag also wrote that “Groupon stock slides among lukewarm ratings.” This is the same Business Week that wrote about “Groupon’s Management Secret in Two Words.” 

• Fox Business named Groupon the “#1 Hottest Website of 2010,” yet right after the IPO it published “Are Groupon’s shares overvalued?” 

• In August 2010, Forbes published a piece called “Meet the Fastest Growing Company Ever,” a glowing review that tripped over itself lavishing Groupon with praise. A mere 12 months later, Groupon had become a daily punching bag: On Nov. 23 hit “Beware Groupon,” the same day the mag also published “Is this Groupon’s Webvan Moment,” and “Groupon Shares Falling Apart; Off 35% in three days.” The next day brought “Groupon Shares Fall Apart,” and finally, “Easy Come, Easy Go: Groupon’s Chief No Longer a Billionaire.”

The cold reality is that Groupon was never as perfect as the early articles would have you believe, nor is it as badly broken as the current articles suggest.

Groupon is a work in progress. Its challenges are the result of a company engaged in hyper-growth so intense that processes were bound to break, and cracks in the foundation were almost guaranteed to form. That is not an indication of death, but life. Having grown up in Rochester, New York in the shadow of Kodak, I can tell you with certainty: death sounds a lot quieter.

The real question is how the company manages the next five years. Its strategists are going to have to turn the corner toward profitability in the face of intense public scrutiny, while still maintaining meteoric growth rates. It will be no small feat. At some point, growth will slow, and they will need to figure out how to manage a business where many employees will lack the financial incentive to continue working there.

I’m not sure if Groupon will find its way to profitability or grow into its multiple. 

I worry about companies that rush to an IPO before their profitability is fully baked. I worry about how solid the foundation is given the torrid growth. I worry about the competitors, and the flakiness of consumers. I even worry about the macro economy.

About the only thing Groupon’s CEO shouldn’t worry about: the press.

Right after dozens of articles in late November trashed the company, the stock promptly climbed more than 50% in less than three weeks. And as I write this, Groupon is trading 10% above its IPO price.

Next time, the press should pause for a minute before they do the Groupon Pile-on.

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4 comments on "The Groupon Pile-On".

1. Shelly Kramer from V3 Integrated Marketing
   

   commented on: January 19, 2012 at 2:58 p.m.
   Well said, David. The same could be said of Klout. Young companies like these are finding their footings, many times with leaders who are still learning the ropes. It's fascinating to me to watch the rush to praise, even in the early stages, and then then equally dizzying dash to diss. One thing is certain - time will, most certainly, tell. Shelly Kramer @shellykramer
2. Jeff Imparato from Topeka & Shawnee Co. Public Library
   

   commented on: January 19, 2012 at 4:29 p.m.
   Call me skeptical, but isn't it possible that these were published to deflate the price, so that interested parties within these mags could by them at a discount, knowing the price would rise soon afterward?
3. Paula Lynn from Who Else Unlimited
   

   commented on: January 19, 2012 at 4:42 p.m.
   When people figure out that $10 off $20 for a $40 dinner that takes $10 in gas/parking is not half off or a deal and keep their expenses down will turn a corner for Groupon. Local relationships for local businesses take time and effort. Will Groupon invest in keeping local or find national/regional be more profitable ?
4. David Koretz from Adventive, Inc.
   

   commented on: January 19, 2012 at 6:38 p.m.
   @Shelly, thanks! I agree that the press loves violent movement in either direction. @Jeff, It's technically possible. That said, intentionally manipulating a stock price is all sorts of illegal. I highly doubt they were doing this for personal gain. More likely, it's just an easy story to write, and will come up in the search terms.

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