Monday Grok: Why rob a bank when you can issue a prospectus?

Monday Grok: Why rob a bank when you can issue a prospectus?

Groupon is tanking and the volumes tell the story

Sometimes you can't see the forest for the forest. Groupon stock closed on Friday at $7.79. It's the first time it has ended a session below $7.90 and that is a significant benchmark in a way that's either depressing or amusing depending on your sense of irony.

Professionals in the investment sector — the real Big Money Men (and they're mostly men) — as opposed to ‘six-out-of-10’ chumps like me, like to brag that money returns to its natural owner. By which of course they mean themselves.

So it's always delightful to see them brought low within the very environment over which they have convinced themselves they hold dominion through the sheer force of their will.

These are people at companies like Kleiner Perkins, Greylock and Andreessen Horowitz — the kind of geniuses who paid the equivalent of, you guessed it, $7.90 a share for Groupon stock in the last private round before an IPO that supposed to transfer all the risk to hapless retail investors. Instead, they themselves have now been bitten on the a*se (depending on how much stock they're still holding) after the expiry of the lock down period on June 1.

For a while they looked pretty clever, especially after the stock surged on day one to over $30 — driven in part by scarcity because of the cynically tiny amount of stock that was released for the float. But Groupon's business model, as Grok has written before, is a crock. Worse still, it's a business built on a dodgy premise run by people who don't seem especially good at running businesses.

Interestingly, as this <i>Businessweek</i> piece suggests, Groupon itself has smelt the breeze and is trying to pivot. (In fairness to Groupon, you should read the piece as a balance to Grok's own brutal estimations.)

Even Groupon's most recent result — a seemingly strong turn around which very coincidently and quite conveniently lobbed just before those late stage investors were finally allowed to sell their stock — seems manufactured by cynicism, driven as it was by the thermonuclear cuts to acquisition costs.

Now here's where it gets interesting: Groupon's value is tanking and those declines are accelerating. After tracking down from the dizzy heights of over $30 bucks post IPO, to the shabby depths of single digits in early May, it staged a brief recovery off the back of that one good financial result (a result which to Grok reeked of financial engineering) to just over $13 on May 16. It has been falling ever since, including a 10 per cent drop on 1 June.

But that's not the most interesting thing either. Check out this graph from Nasdaq , and in particular look at what's been happening to volumes since those early investors were released from their obligations and allowed to flee. Interesting, hey. Here's the punch line: It's fallen more than 30 per cent in value off the back of those very strong volumes in just over two weeks, despite there being no particular news at all to drive such an outcome, as <i>The New York Time's</i> Dealbook noted a few days ago.

Now, ask yourself: Why? Can anyone else smell a dead cat in the rafters?

Andrew Birmingham is the CEO of Silicon Gully Investments. Follow him on Twitter @ag_birmingham.

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