Groupon IPO at an 88% Discount?

Groupon looks like the incredibly shrinking IPO. Just six months ago, its
valuation was roughly $25 billion. Now? Well, according to a Bloomberg article,
it could be as low as $3 billion . Keep in mind that last December, Google
(NASDAQ: GOOG ) offered $6 billion for the daily-deals site. So why the
implosion? For the most part, it is yet another classic case of the boom-bust
nature of the tech world. Let's face it, only a few companies are able to
become long-term winners, such as Microsoft (NASDAQ: MSFT ), Oracle (NASDAQ:
ORCL ) and Apple (NASDAQ: AAPL ). The rest either sell out or go bust. In the
case of Groupon, it certainly was targeting a huge market opportunity. Local
merchants always are trying to find ways to get customers. So yes, they will pay
a premium for this. The problem is the Groupon model is flawed. As noted in a
recent piece in The New York Times , many merchants are disappointed with the
results . Basically, the deals often draw customers who have little loyalty. So
merchants are learning a valuable lesson that is, not all customers are good.
In fact, enough bad customers can kill a business. Interestingly enough, it
looks like Facebook has taken note of all this. The company recently closed down
its daily-deals business but continues to focus on local merchants . To this
end, it has teamed up with the Chamber of Commerce and National Federation of
Independent Business to provide support and training to help business owners
with social marketing. It looks like an approach that should get traction. As
for Groupon, there certainly are other reasons for its discounted valuation. The
company had to restate its revenues , resulting in a number less than half of
its original report, and the company continues to face extreme competitive
pressures. And the company is losing hundreds of millions of dollars as the cost
of acquiring customers escalates. Amid all this, investors likely will focus on
the business model. And for the most part, it is hard to believe it can be
sustainable for the long haul. Tom Taulli is the author of "All About Short
Selling" and "All About Commodities." You can also find him at Twitter
account @ttaulli. He does not own a position in any of the stocks named here.