Groupon reported this week that its revenue jumped by 89 percent since last year, a better-than-expected result that surprised investors and sent the daily-deals site's share price climbing by 16 percent. Groupon's stock had been declining ever since it launched its IPO in November, as investors soured on the company's poor earnings results and shady accounting corrections. Groupon was subsequently held up as the poster child for a burgeoning tech bubble, as over-exuberant investors had valued the company at close to $18 billion on its IPO — a figure that soon fell as low as $6 billion, though it's since clambered back to $8 billion. Is Groupon about to come roaring back?
Yes. Groupon is improving its business model: Groupon not only bulked up on revenue and expanded its customer base — it also brought down its marketing costs, says Rolfe Winkler at The Wall Street Journal. The company's harshest critics have "argued that its business model would collapse when it dialed down marketing expenses," saying the site was too dependent on advertising "to promote its daily deals." But now it looks like Groupon can grow and spend less.
"Watch out for Groupon's stock bounce"
But Groupon still faces challenges: Groupon still didn't post a profit, and it's not clear when it might do so, says Sandra Guy at The Chicago Sun-Times. The company's accounting practices remain a source of distrust, and Groupon hasn't really cracked the smartphone market yet. Furthermore, customers could become tired of "getting bombarded with daily email deal offers," and Groupon is facing "significant competition from would-be copycats."
"Groupon, Facebook carry risks, say analysts"
And the stock is about to plunge: Groupon "has a major problem looming right up ahead," says Joan Lappin at Forbes. Groupon's pre-IPO shareholders have long been prevented from unloading their stock. But that will change June 1, when 95 percent of Groupon's shares will go on the market — that's right, "only 5 percent of the shares" are publicly traded today. "Whether those shares will come out in a torrent or a trickle… remains to be seen." But either way, the market will become awash with Groupon shares, supply will exceed demand, and many investors will be looking to unload Groupon stock.
"Groupon caught in the mother of all short squeezes"
THE WEEK'S AUDIOPHILE PODCASTS: LISTEN SMARTER
- The mystery behind China's aggressive push into space
- Here's the schedule very successful people follow every day
- Yes, Republicans can impeach President Obama
- What religious traditionalists can teach us about sex
- What would a U.S.-Russia war look like?
- The 5 best and worst states for a well-lived life
- Why Texas' abortion rates aren't falling as quickly as everyone expected
- Why all drugs should be legal. (Yes, even heroin.)
- The 6 best low-cost smartphones
- 7 ideas from ancient thinkers that will improve your modern life
Subscribe to the Week