Groupon Under Possible Federal Investigation


I have been looking at Groupon’s business model now for almost two years, wondering how they were going to convert their signups in to actual purchasers. As I pointed out in October of 2011, Groupon built their entire database on performance marketing  with the sole purpose of translating their users into value for an IPO.  A month later, I pointed out that Groupon had serious troubles with their business model, and had no fracken idea how they were going actual convert those users.

Well, despite my warnings in numerous publications and in the media, people still looked at Groupon as the newest big thing and let the company go public in November of 2011.  Of course, now they are finding that something is really wrong with the company.

As DailyFinance Reports:

 Investors shouldn’t be too surprised that Groupon (NAS: GRPN) is being forced to restate earnings for its first quarter as a publicly traded company. Like the proverb goes: Fool me once, shame on you; fool me twice, shame on me. This isn’t the first time the daily-deals site has tried to convince shareholders that its problems are only skin deep.

Well, it’s a lot worse than having to restate their earnings. It seems that the SEC, the Government Securities Watchdog is now taking a look at Groupon.

According to Bloomberg:

 The SEC decision to examine the circumstances surrounding Groupon’s surprise revision is the start-up’s latest run-in with the regulator. Groupon twice revised its finances before its November IPO. An SEC spokesperson declined to comment, as did a spokesman for Groupon.

Well, that is just the top of iceberg in my opinion. If the accounting problems are in question now, imagine when the investigators start looking at their Pre-IPO accounting. I think they will find that quite a few people over there expressed that the company’s business model was shaky at best, and was basically based on signing up as many people up as fast as possible, even if they would not turn into real customers.

Frankly, investors and the media need to really start understanding our industry, performance marketing, where anyone can acquire sign-ups for extremely low prices and then convert them into customers.  This is perhaps one of the best models in the interactive advertising industry, but can also be used if not understood to do a Groupon-style blowup. Signups does not always equal customers, and unique visitors does not always equal revenue.

What's your opinion?