Groupon IPO like investing in British phone-hacking scandal

by Bruce Kasanoff on September 26, 2011

Many weeks after the scandal broke that British tabloids were hacking into the voicemail boxes of others, would you invest your money in a phone-hacking company? If not, then you shouldn’t invest in Groupon.

I’ve written previously about Groupon here and there. Since then, Groupon’s IPO hopes have dimmed but not disappeared. Not to overstate my non-existent influence, but perhaps the third time will be the charm.

Groupon may not be doing anything illegal, but they are doing plenty that borders on the unethical: pressuring merchants to practically give away merchandise to attract customers, inflating their revenues with bizarre and unprecedented accounting practices, and stretching the boundaries of “quiet periods” before stock offerings.

If you believe that after decades of bringing IT innovations into companies, the best use we have for technology is to discount merchandise by 75%, invest in Groupon.

If you think that merchants will be loyal to Groupon, despite the fact that Groupon offers seem to attract customers looking for a bargain and nothing more, invest in Groupon.

If you think that any company can make money on an ongoing basis by selling products for less than its cost of goods sold, invest in Groupon.

But if you decide to do so, recognize the risk not only of losing your money, but also of having to explain why you invested in a scheme that many consider to be barely better than hacking into someone else’s phone.

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