In my last Groupon article, I pointed out several examples of Lefkofsky's historical pattern of starting companies, growing them quickly, and cashing out via IPO, only to watch the company fall quickly into bankruptcy.
In this follow-up article, I want to consider the state of the company by listing the top seven questions I want to ask Groupon management on its Q2 conference call:
Do you capitalize any costs that could be considered marketing expense? For example, do you capitalize any costs because some marketing tools are software-related? If we reversed the costs back into the income statement, how much might it negatively impact earnings?
Does the dollar size of the payable affect the length of time it takes to pay out each business customer?
In CEO Andrew Mason's published email to employees, he discussed how customer-acquisition marketing expense is short-term in nature because they only need to market to customers once to retain them, "we just spend money one time to get you on our email list, and then every day we email you a reminder …There is no cost of reacquisition - that's unusual." What is the current consumer opt out percentage? What is the trend on this statistic? What percentage are you able to re-acquire and at what cost?
On the last quarterly call, management discussed a few business customer retention initiatives, including Groupon Rewards. The Rewards program rewards customers for repeat visits to stores by giving them a Groupon - for a place they already frequent. What advantage have business owners seen in giving out Groupons to loyal consumers who have already demonstrated they will pay full price for the goods or services?
What is the trend you see in terms of the split between your large and small business clients, both internationally and domestically? Are the smaller businesses customer acquisition costs higher than the larger ones? Can you compare ROIs, since you prefer to use this statistic?
What percentage of your small clients, if any, have gone out of business before you pay them in full? If that has happened, what do you do with that excess cash?
There are two different ways you pay out your business customers, depending on where they are domiciled. What is your days' payable outstanding (DPO) in the U.S. vs. abroad?
I notice the emotions of this stock often relate to the stock's market value. I realize the price of Groupon stock may bounce around. I am not looking at the stock price as I write this article - only the sustainability of the business. Tuesday's news is just another step in the wrong direction.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.