A lot of opinions are being generated over the delay of the Groupon IPO. Many are becoming bearish on Groupon, and many are becoming bearish on the future of social media or at least the valuations of social media companies.
I think it's a bunch of whistling in the woods.
I have a different perspective from a lot of people because of my age, you don't become bald without a little experience, and my lifelong occupation, trading.
For those of you that don't know, I have traded my own money for over 20 years. I never had a customer, a limited partner or anything else. It gives me a far different perspective on marketplaces than someone trading other people's money.
I don't see Groupon or Zynga as a tech bubble like we had in the late 1990's. They actually generate revenue. I do see both as dealing with growing pains that come from a business transitioning from a start up to a larger entity. Since they have filed for IPOs, instead of getting scrutiny from amateur analysts, the real pros on Wall Street are digging into their business models.
Some valuations have gotten frothy. It's just a case of too many dollars chasing too many businesses. Smart investors filter out the noise and look at the metrics they always have to decide how to value a company. In the start up world, much of it depends on how much you believe in the management team.
With regard to Zynga, their business is heavily dependent on Facebook. I don't necessarily see that as a positive or negative, but when you commit investment capital you need to have both eyes open going in. The other negative I see in the business is that they constantly have to be creative to engage their user base. However, based on a Wall Street Journal article I read over the past week end, they are really innovative in using data to determine what they do. While the easy money may have been made in Zynga, I like the company, because I like the management.
What about Groupon? Many I speak with refer to the indefensible barriers to entry they have, and the fatigue that businesses supposedly have over getting calls from them. This might be true. I think the delay to their IPO has more to do with the creative accounting that they tried to use to value their company. They need to redo the road show and answer some objections from institutional clients.
They have an incredible amount of data. They also have one of the largest email lists in the world. When location based couponing becomes the norm, why won't they be first in line to win that battle?
I was driving down the highway the other day and thought that someday, sometime in the future a billboard company will be able to see the traffic that is coming down the road, and tailor a billboard to try and sell to the needs and wants of the coming drivers. It will be able to change the billboard digitally hour by hour.
Groupon might have a hand in that business. They also might be able to target customers that are simply walking down the street, walking through the mall. Tom Cruise shopping experience in Minority Report isn't far off.
Stubbing your toe hurts for awhile. But, it doesn't derail you from walking. Consider the momentary disruptions at Groupon the equivalent of a pre-teen girl getting braces. It's part of a maturation process. Certainly they have challenges. What business doesn't?
