Michael Kudrna

Long/short equity, deep value, momentum, contrarian
Michael Kudrna
Long/short equity, deep value, momentum, contrarian
Contributor since: 2010
Alibaba's stake was from last year, as of Dec 31st, but wasn't reported until after the close.
It has nothing to do with yesterdays move, which was all earnings based (improved guidance) and shorts squeezed since it fell into earnings without any significant covering prior to it.
Now that you have shown us one less bowling customer though, GRPN should clearly go bankrupt.
I have limited time to respond so ignore typos. It's of no interest to me to debate this as I'm no longer in the stock nor will I be in it anytime soon.
As I said, I disagree with your optimistic thesis as the timing is not there making this closer to a pure gamble, not a strategic/calculate bet. We're not in a bull market anymore nor is the stock in an uptrend therefore it's going to be viewed by many as weakness/last resort to increase stock price. You can argue it all you want (read "irrational markets": Keynes). Shareholders have sold off since ER despite a market rally, another sign it's not being digested with optimism. ACLS is currently in its third worst selloff in the past 12 months.
In 5 min of looking at NEU, the RS looks like it was in july 2002 (a completely different market, at a different time, which is nothing like today's environment or market perspective). Your best example is over a decade old. After the RS, it fell from there until what appears to be blowout earnings on Oct 30 2002 that reversed course along with a multi-year bull market helping fuel it. It looks like NEU was nearly doubling it's revenue whereas ACLS isn't "blowing" earnings out of the water in such a fashion, so you'd have to be gambling that they will to try to compare the two as equals.
Environment is 50% of the average stocks trajectory. I dont understand why you think both environments are the same when they appear to be opposites, it sounds like all wishful optimism.
We're also seeing Institutional Outflows, further weakening your thesis. IWM is under 100 now. Small caps are not catching a bid in this market like a larger cap is. This is a "protect your capital" environment until proven otherwise and "cheap" can always become "cheaper."
On top of it, why would you hold into an RS when you can buy after the RS when it's safer? Using the example of NEU, the best time to buy was after the RS, not before it, unless the 5 minutes I spent scanning it, I misread something.
That means your best example is actually proving my point.
I like the company, doesnt mean I like the stock right now. Good luck on your trades. I hope you make money, its just more gambling than strategic from what I see.
Kid,
It moved 2 cents today on a huge market rally day. Not even a full percentage point higher and it was below its average volume. After earnings, it has fallen more rather than shareholders showing confidence.
If the market continues to free fall over the course of the year, which is looking more and more likely, then ACLS is going to get cheaper and cheaper.
Keep yelling at the stock. It might move the louder you get.
No they are not, in a falling market, RS is perceived as weakness, not strength. You can argue that it's truly a position of strength and like I said before, that could be a correct argument.....but that doesn't mean the market perceives it the same way.
Any trader knows the importance of that last part of the sentence.
I like the company, but I closed out after the ER.
Good luck
"lol, you're an idiot mike"
Spoken with eloquence. Your opinion is clearly valuable.
As the CEO said, "I hope" the idea of an RS is perceived well.
Good luck
reverse splits are great shorts. More often than not, RS is used as a last resort, not a position of strength. Unless there is some behind the scenes agreement that they RS and a big buyer comes in to load up, the falling market will punish an RS.
Now if we are in a QE environment/bull market, I wouldn't have such a strong opinion, but it's setting up a perfect storm.
an RS during a falling market is like asking Clubber Lang what he predicts in his upcoming bout
Reverse splits tend to decrease shareholder value more often than not and the marketing community perspective believes that to be true making it true.
It could be great, but trading alongside the masses is safer than trying to argue with the masses they are wrong in situations like this.
CEO made a mistake talking about reverse split. That won't encourage long-term investments.
I wish it was that simple. This is all $IWM (market) driven from my perspective.
I'm mostly trading $SPY because the market has been so unhealthy.
Doggie,
I understand your points and I agree on implementing it at least in a test phase down the road. I disagree with your cost structure and what it will add to revenues as I believe that is by far the best case scenario. From my own personal experience with owning businesses, nothing ever goes as planned no matter how thorough the plan is.
At this point in time, with a new CEO, I still believe the only path that should be taken is market and produce more efficient processes to reduce labor. Nothing else done until they can gain some momentum there.
As of today, I see only marketing, but I don't see any improved efficiency and reduction in labor costs. Maybe that will change after Feb earnings report, but at this very moment, I do not trust management to do anything else and I do not want them deviating from that simple 2 step plan.
That 2 step plan should ensure profitability. After profitability, I want an aggressive growth strategy with ideas like you just mentioned.
When your professional baseball team can't bunt, can't hit for average, can't advance runners, can't field......the coach takes the professional team and makes them go back to doing the basics in practice. Getting in a homerun hitter might mask the problems for a period of time, but the problems still exist.
I want the problems fixed without any distraction. No more CEO excuses. I want complete confidence they are focusing on the only problems they need to focus on fixing right now. If they deviate, I will trade this stock when I need to and ride the waves and look to exit my long-term position throughout my trading. At that point in time, I will have lost all confidence in the competence of management. I am treating them like little kids until they prove they are adults.
They have a great position to make this fixes and make them within 3 months time. I don't want 3 months time dragged into 24 months because they were multi-tasking and believing in best case scenarios.
I want them to start planning today for the worst and tomorrow will be a better day then.
That doesn't mean I don't understand your point and I do agree it should be rolled out....but I want to see other progress first.
" But I also feel that if it were as simple as cutting inefficient employees, they would've done so"
My thought process is the tasks are not streamlined to create efficient employees. Upper management hasn't seriously looked at their "processes" to build efficiency. They just do what the Govt does, "create a new position" and keep doing that over and over again exactly like the Govt does since our Govt operates without any efficiency at all.
Efficient processes many times means you can even have less skilled employees handling it because the process is so streamlined that it allows for the correct consistency without changes in employee skillset.
"Their deal builder platform has been around for almost three years now and while it has grown in use, it remains a small portion of their operation."
To me, it's useless. It is too restrictive and when you get to the final part of how much commission GRPN gets, you realize how their infrastructure costs just too damn much to make it worth my time. Giving them 50% commission is not in the restaurants best interests. Without a food cost, let's say I had a "gym" it would make more sense.
2 things need to be done
1) Build efficient processes and stop acting like you're the government. This will cut down on your overhead so you can thrive on smaller commissions
2) Build commission structure by sector, NOT one size fits all. You can maybe get 20% from a restaurant without destroying their business model. That would entice more deals, better deals, more vendors, more returning customers wanting the deals, and more sales, etc....
You can't do 2 without fixing #1 though. Reduce the overhead so they can survive on smaller margins. By all means, keep gyms at 50%. They don't have a food cost and labor cost like a labor intensive restaurant does. That means they can get more business from vendors like me and even more profitable margins from vendors like gyms (or anything else similar to a gym's cost structure as they already paid rent regardless of the groupon deal).
3) Then we get to #3 and GRPN should provide better instruction on how to benefit from a GRPN deal. How do you run a deal on GRPN and turn first time customers into loyal customers? How do you run a deal on GRPN and handle the influx of high volume without the sacrifice in quality and service? Guide your vendors with these answers and you'll find better prepared vendors, happier vendors, therefore happier customers.
They have the inflow of revenue to focus on fixing the processes right now. This fix will unlock significant value is my thesis.
Agreed Kevin and that is why they need to find a way to automate processes to reduce how labor intensive it is.
This is exactly the same problem I am facing with my restaurant. Everything is cooked by hand, we don't use automated technology like a McDonalds who can keep their labor lower (while minimum wage increases screws me more). Cooking by hand gives superior quality, but is a drain on labor because I can't hire just anyone, they must be competent enough to cook it right and consistently let alone enjoy it.
So, my prices go higher just like GRPN's % cut from vendors is high (which is why I only use the ToGo service as it's a fair priced service at the moment).
If I keep pushing my prices higher, I will lose the casual customer, which is my target demo. I must, as the owner, find ways to streamline processes and reduce tasks without sacrificing quality or service.
I can be premium priced, but there is a limit on what I can do unless other places increase prices giving me more room to play with. So, I am tackling projects like streamlining my online ordering to automatically sync up with my inhouse computer systems. Doing this removes a massive task for order takers therefore freeing them up to give better customer service, faster service and cleaner premises. I increase their productivity therefore I don't need as many order takers and/or I don't need them for as many hours.
Point being is, there is always a way to reduce labor if your job focus is set on finding ways to reduce it (it can't be a casual thought, it must be a true focus to improve processes/cut labor). Especially when your business is an online site, there should be plenty of ways to automate (and having nearly 1 bil in cash helps). On the vendor side, I talk to some GRPN employees who I can tell are very valuable assets, then I talk to others and I wonder how they got hired in the first place (stories for another day).
That tells me, there is room to cut and each cut can add significant value to the bottom line if they do it strategically and not recklessly. I'm voting for "strategically."
Thanks for posting....your comments bring a lot of value to the discussion.
Schumer has jumped into the political arena a few times last year, that might be a problem. Typically you want to stay away from people who voice their political opinion.
I'm not sure she has staying power as a comedian either. Most comedians last a few years before the next comedian takes over. Usually bad investments because they lose their star power so fast.
Plus trying too hard to be funny can be problematic. Old Navy commercials are not funny with their spokesman (I forgot her name) so unless it's very cheap to get them as a spokesman, the commercials may not have as great of an impact.
I think it's all for the future though, at this point, it would not be a wise investment with the resources they have available and current needs. I want to see the results from the current marketing push and the cost of it before making a judgement though.
Doggie,
That's why it was confusing why reading your point about layoffs sounded bad when you have always agreed with me this is a positive sign to cut staff/expenses.
I fully agree on consolidating down to one app....1 everything as much as possible. Then branch out from that strong core position. I want a strong consolidated efficient core business that acquires others and innovates. That type of company is valuable and easy to sell that value to shareholders (meaning stock goes up).
Sugi:
That's because it is the companies fault, not the employees. The company/management go in too many different directions without a strong core leadership that I keep presenting the goal should be. Create a solid core with a solid vision and ensure proper communication among all departments/divisions. Ensure no job tasks are overlapping (inefficiency).
Anthony:
I think a spokesperson would be a natural good step forward (for marketing) as they are building the ToGo platform nationwide. The average person thinks of Groupon as cheap deals, so I would think a potential discussion around having someone who elicits premium value (maybe a strong woman) would help offset that by making them feel "cool/trendy" for finding deals. I don't have the data in front of me, but I believe females represent a very high % of buyers too, so I'd probably focus on a female that displays high value to the 25 to 45 age group. No single person comes to mind from Hollywood (I'm not really big into Hollywood), but I'm sure someone could find multiple actresses that fit that role.
In the 10 most powerful women of 2012 (old i know, first google that popped up when searching). The notable names that I think would fit the bill (but might cost too much defeating the purpose) are
Angelina Jolie
Shakira
Sofia Vergana
I think all 3 of those are very likable for both men and women, exude premium value thinking, but may cost so much that it's pointless.
Again, I'm only stating that for the sake of discussion, I'm not saying it should be done. This is the first time entertaining the idea, and I think the idea is valuable if the price is right (which is hard to gauge).
Anthony: Any idea how much Shatner is paid in total compensation from Priceline? I'd imagine any of them would get 2-3x that multiple.
Anthony,
If I had to make an educated guess without actually working in Groupon, (you can read employee reviews on glassdoor) I'd say they have horrible processes and managers who seem to lack direction/vision (going back to my first article). They likely have tons of overlapping job tasks and positions that they could cut down to 1 person to handle the tasks that they currently have 2 to 3 people doing. If they streamlined the processes, they could get 1 person to do it without stressing that person out completely.
If they audited themselves, they could reduce expenses pretty fast is my theory. I wasn't completely joking with the Office Space analogy. There should be an audit and processing team (or consultants) asking employees the question of, "so what do you actually do here" and If you put 2 of those consultants in every office, in one months time, you'd have a more thorough gameplan of what to cut fast (without any service problems) and what processes need to be created/improved to cut the next layer without losing quality of service.
If they just cut without doing these audits, they risk service issues that will defeat the purpose of the cut.
Doggie:
1) It doesn't matter if it takes 1 day to build a messaging system. It's not the core business and the core business needs to be tightened up so it can fuel future innovation, M&A, etc...it's almost basic business 101. The core business needs to learn to operate on less expenses/slimmer staff. The core business doesn't need innovation to survive, it just needs to be cleaned up to turn a profit, then those profits can be reinvested. The core business can work without any new innovation, which is a great position for GRPN to be in....again, it can survive without innovation which is a GREAT POSITION FOR GROUPON TO BE IN. You seem to be making the claim that you want to build on quicksand and I want to build on rock. You should know that analogy. CEO can not lose focus on improving the financial model without distractions (messaging system), more expenses (messaging system), etc..... He will increase odds of failure if he moves away from creating the right financial model by distracting himself so people can message eachother. Vendors can't even build their own deals or control their own page....which I will again reiterate in point 2.
2) Vendors can not start their own deals without being put in a cookie cutter process that is useless only to be tossed aside to talk to someone to help customize it. Have you attempted to use the deal maker? I have. It forces your hand on everything. It's not a deal maker, it's useless. I'm saying build a solution that allows the vendor to customize. Ebay doesn't put you in a cookie cutter solution dictating to you what high % discount you must sell it at. Ebay allows for the free market to dictate your sales success, Groupon tells you that you can't do that and you must discount it heavily else you can't be on groupon. Unless you reach out to a rep who have changed their tune from that old groupon to allowing you to customize matters more...but they are very inefficient at this which is why the process needs to be streamlined online allowing for customized deals with a click of a button. This will also allow for less staff needed on the sales side.
On top of it, you can't control your Groupon Page whereas you can control your FB page and market it. The natural progression once they slim down staff and grow revenue via marketing is to unlock pages for vendors and let vendors market their own pages to the groupon network. That will help future growth once they can get the core business back on track. In the meantime, piggybacking off FB is a great way to divert traffic from FB's network to GRPN's network.
3) Only 1,000 layoffs? I'd be disappointed if they only shave 1000 employees by the end of the year. The business needs to slim down to survive and they have too much overlapping people who are not producing at the pay scale they are getting. They need to increase productivity so they can decrease labor needs. This is not the employees fault, this is managements fault for creating positions out of thin air without analyzing the processes for efficiency. If the business continues with high labor, they will all be laid off when someone buys GRPN. This really surprises me how you have been the biggest proponent of cutting down labor, but now you're making that sound like a bad thing. Layoffs are a necessity at this stage in GRPN's life. The business is more important than any single employee. If the business can't survive, the employees don't matter anymore. The business must be protected like a baby infant and taught to grow stronger like an adult so that the business can support more and more employees. Groupon took on too many employees too early without focusing on auditing it's own departments. 1,000 employees is too small unless they increase revenue so much without adding any new employees that they can make it work...which is unlikely to happen or at bare minimum, not enough public data can support that thesis at this point in time. They must layoff staff and increase efficiency of existing staff.
Anthony:
Thanks for the vote of confidence. I think the CEO understands this based on his past statements, but I actually do plan on taking the time to reach out to him as well as post an open letter to the CEO on SA when my schedule permits
Doggie,
I don't think messaging is THAT important and I think there are plenty of other higher priority items to work on before we get to that.
Vendors can't start their own deals without human interaction. That is a much higher integration need I want to see before consumers get to sext eachother.
I am not sure people actually go to GRPN with the desire to message eachother when GRPN can just piggyback off FB's messaging system (like they are) to entice orders. If/When vendors can create their own deals and run their own GRPN page, I see it as a natural progression, but until then, I see it as an unnatural/forced integration that will open a can of worms of it's own problems (more staff just to manage the messaging system, prevent abuse, handle all the crybabies who think someone was mean in a post to them, handle all the people that can't figure out how to post a message and think the system is broken, handle the real problems when something does break, handle intentional hacks into the system, etc....). I don't want them wasting time on that until they streamline existing projects/staff.
Keep Marketing and increasing customer metrics/creating repeat customers, Streamline employee operations (reduce how many employees you need/increase profits), Streamline vendor deals (allow vendors to handle their own page and deals without the need for GRPN employees to be the intermediary) fill out the ToGo platform nationwide, etc....
If they can get that machine going and firing on all cylinders, I think they can be in a position of innovation again (like FB is in) and even M&A. Right now, they are not in a position of innovation, they are still in a position of proving their business model (for lack of a better word as I rush tonight) to show a profit. I think they are in a great position to prove profit IF AND ONLY IF they stay focused on the task at hand.
That is why, in time, I plan on writing a follow-up to my lack of leadership article from last July to an Open Letter to the New CEO on those key points I hit upon if I see him deviating from it.
What I'm telling him to focus on in his business is not unlike what I am personally doing with my business so I am in a position of buying other restaurants because my foundation is rock solid. He just has to stay focused and complete the financial model by reducing expenses and growing the customer metrics.
Anthony, Seattle is more of an engineering hub if I understand it correctly
http://bit.ly/1PBIicN
The slashes they need to make are in the Chicago office if again, I understand it correctly. They have too many positions that are not streamlined for efficiency. They need a "Bobs" (Office space) consultant to come in and streamline operations and clean house (so what would you say you actually do here?) by understanding how you have 2 people doing what are similar enough jobs that they should be combined into 1 job for 1 person for half the cost.
Then, they need to find a way to be more like Ebay and let vendors (me) sign up without the need of a person having to be the intermediary since that becomes expensive.
Between those 2 moves, you could drastically cut workforce and turn a profit based on my understanding of their financials and business model
Everything I've seen is that Groupon takes care of their customers if the seller of the deal doesn't live up to the deal offered in any way.
I'm not sure everything you're asking is feasible, some of it doesn't make any sense to me and others don't sound valuable for GRPN to do at all. What you're saying is all over the place making for too complex of a reply for me to do at this moment as I have limited time.
Growing a userbase is one of the best investments one can make as long as it's done with strategy and not a blanket waste of ads. Now if you want to challenge their methods, that's fine as I do it often (they still need to master free social media viral marketing), but trying to say it's a waste of money to invest in new customers (which it sounds like you are saying) and putting GRPN in the minds of others doesn't make any logical sense to me. The are selling a product and evolving their business, marketing is essential throughout that process.
On top of it, improved customer metrics will grow the share price and market cap. The bigger the userbase, the more money the company is worth if they ever want to sell or merge with another company....which is likely what GRPN will do someday.
Sugi:
How many transactions do they do on a daily basis?
How many bad reviews do they get from those transactions?
What ratio is that?
How many bad reviews are normal regardless of what industry you are in based on the amount of transactions they do on a daily basis?
It was announced in November, analysts have already adjusted for this
Daviry, CEO believes it will drive revenue, but that it's not an immediate impact, it's a "delayed" impact.
Advertising today helps sales tomorrow, so to speak. Tomorrow being later this year at earliest.
They have eaten into it over the years, but I don't see it as an "increasing" instead of "already done the damage"
I don't see why FB would do anymore at the moment (like building their own deals site) because the ads allow consumers to spend their budgets advertising their own deals. No point in building what they have already built. The thing is, there is room for more because FB isn't the only "network" available. GRPN has it's own network. Amazon has it's own network. Ebay has it's own network.
If it was only FB, something else would pop up because human behavior doesn't want only one option.
GRPN has an established 50 mil base that is growing. It's best to diversify marketing and allow them to also build, which is what they are creating by finding ways to mutually benefit me (whereas before I ever became fond of GRPN's business, I want anti-GRPN because it wasn't mutually beneficial to my industry since I have a food cost....now it's becoming more and more beneficial as they change their ways and allow me to be more strategic within their business model).
how much?
That depends on you. The minimum can suit most any budgets, so it can be as large as you want, but the larger it is, the wider the audience you should strategically choose so that you're not bombarding the same people with a high frequency of the same ad as it will get annoying after a while.
These are ads that create "social engagement" whereas an ESPN ad is just there. No social engagement. You can't "share" it with your friends. You can't "comment" on it and create more attraction to the ad. On FB, you can, and the benefit is great.
1) For a revamped menu, which happens for me twice a year, It's likely best to do this in steps, like I do. I don't advertise all items at once. I advertise them usually individually with nice pictures and repeat a few ad rotations later. The key is to build social engagement, not just bombard them with an ad.
2) You can advertise for 2 weeks or any timeframe you want. I've done as little as one day, as long as 45 days. The longer the ad, the less value it builds over time as the same people see it and get bored with it. Variety is key. The average ad I have is around 5 days.
3) This you can have a field day with. How about a city, only a 10 mile radius around that city (on people who have entered that radius, not necessarily JUST live there....so people who drive to work there or visit the radius will see your ad, not only the people who live there). You can even go further and say I only want to market to 22 to 44 year old males who are single parents who have day time jobs and bought baby clothes recently (maybe I'm selling a babysitting service, I don't know). Point being is, this allows you to be strategic.
Then you can see how many clicks you get on your ad, how many people blocked your ad on purpose (so if your ad is intrusive or comes off wrong, it gives you feedback on how to remedy it on your next ad), how many people commented on it, shared it, how many people commented on those shares, how many total people viewed it, how many clicks you get on your website link that you put into your ad, what happened after they landed on your website page (what behavior did they have), then you can tie it into Google Analytics and see more detailed user behavior, etc....
The only reason I'm not saying more is time constraints....I can write a book on this. It's a core part of driving new users to my business as cost effectively as possible.
good points Anthony, agreed. I view FB has having far better value (and efficient cost) to advertise on than other options. It's ok to branch out above FB obviously, but to me, you need a strong FB presence before expanding to specialized and less efficient sites like ESPN, etc...
FB is pennies to advertise on WITH targeted ads compared to the sites you mentioned.
FB has far better ad delivery and statistics to back up how your ad is doing.
I know this from personal experience as it's one of my main tasks to build social media presence for my business.
That's not true. My business has online ordering just like GRPN and flourishes with online ads, which when done right can reach people for the cost of less than a penny per person in some instances, because it puts the "buy" button right in front of them. The right ads create impulse.
It's not about you or I, it's about the masses. The masses operate and think differently than me....and it sounds like they think differently than you.
ToGo seems to be on the backburner with the New CEO. I saw a drop-off in sales from Nov to Dec, but since the new year (with new radio commercials) I've seen it pick up again with new customer names I haven't seen before which is a strong sign. I believe his goal is to spend money on getting new GRPN customers as a whole and let them uncover the ToGo services themselves when they go to the website.
The radio commercials I hear say things like, "(insert local restaurant name), Think Groupon, (insert local restaurant name), Think Groupon"
That strategy is to repeat the name so many times it embeds it in your mind and you end up checking out Groupon's site out of curiosity because it's embedded in your mind. I expect that will evolve to more specialized commercials over time.
"I have not personally used Groupon or any similar service for a year or so. "
I don't personally listen to country music. There must not be a market for it.
couldn't happen to a nicer company
Slight pressure to upside, but low volume indicates it's mostly shorts covering and not being pressured aggressively.
Lost opportunity for bulls to press the shorts while they are covering. Shorts are covering more on their terms rather than being forced aggressively.
On a bright note, yesterday, I heard a pretty good groupon commercial on pandora. I listen to pandora daily, so yesterday (and today) was the first time I heard it.
I just wish they would do more free social media buzz marketing. The man buns post they did went viral and got everyone talking about Groupon for 1-2 days. Wish they were smart enough to do that more often as the people who enjoy the viral posts are quicker impulse buyers who are already online and ready to buy.
glad to hear it gwynfryn, as I obviously know nothing about you and I obviously wasn't intending anything to be offensive.
As someone who lives in a highly PC society, I get offended when people turn something that isn't offensive into pretending it is offensive.
It's hard work to not offend someone these days....and I already have enough work to do these days.
but all of that is a topic for another day. Thanks