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The Woes of Groupon’s Business Model…I don’t want to say I told you so, but…

On 6/8/11, I made a post on my blog regarding:

“A 6-8-11 New York Times articles worth looking into.  ‘ Is Groupon‘s Business Model Sustainable? By MICHAEL J. DE LA MERCED ‘

NYT … Despite the explosive revenue growth of the social site, Groupon’s business model appears to be currently faltering somewhat, based on the numbers in its I.P.O. filing.

Neven … In my humble opinion, this is a very unbiased and very good analytical insight into Groupon’s business model. ”

I don not want to say that I told you so, but … according to the Aug. 17th, 2011 …. article by Henry Bodget ,    ” Don’t Mean To Be Alarmist, But Groupon Is Running Low On Cash “,  there are some questions and concerns that need to be answered . In my humble opinion, it seems that Groupon’s business model does not have a “wide moat“. It’s business model is apparently reliant on increasing sales to increase CASH FLOW. That is fine if a new venture does not have many emerging competitors and has high barriers to entry for this type of business model. However, unfortunately, this is not the case for Groupon.

With no “wide moat” barrier to entry, Groupon must increase it’s client base in order to maintain positive cash flow. Unfortunately, there are already many competitors to Groupon on a more localized level; thus being ( PERHAPS ) more responsive to the local market. This would indicate to me, as well as any rational investor, that Groupon’s business model and strategy is thus far somewhat precarious. This is not to say that they will not be a hugely successful company, but rather that the company needs to redefine is core competency and strategic initiative. If the company’s I.P.O. is successful  in raising billions of dollars of capital, they will have the means to alter the offering and strategy as a company and hopefully build a “wider moat” against competitors. Otherwise Groupon’s future will be more precarious.
We will see what happens.

About Neven's Blog

My blog focuses on FINANCIAL MARKET ANALYSIS & INSIGHT from a macro as well as a micro - level point of view. The information is straight forward, honest, simplifies complex matters, questions some oversimplified matters, all while being as easy as possible for readers to understand. I primarily focus on capital and currency markets by combining insights, analysis & ideas from the fields of finance, economics and geopolitics.


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