Be wary of Groupon

This IPO is just a repeat of the previous dot-com era, when so many investors lost so much money.

By Jim Cramer Nov 4, 2011 8:57AM

the street logoSo Groupon's (GRPN) initial public offering is being priced at $20 per share? That's what it's going to do? That's the game it's going to play?

 

We saw the same kinds of walk-ups from the low teens to the high back in 1999. Saw it with TheStreet (TST). Go read about it in "Confessions of a Street Addict," in which I exposed this ridiculous practice.

 

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Except this time, it is worse. The bankers are juicing this one like you wouldn't believe, with only 5% of the float being sold -- half of what the other dot-coms of this era offered.

 

So forget the fact that Groupon has a ton of competition, now and in the future. Ignore that it cut spending to show more profitability but said it could ratchet it back up after the deal is completed. Ignore the repeated bizarre methods of accounting that the company has used for its financials. And forget that insiders, who aren't selling on the deal, have been selling all along.

 

What's happening here is nothing short of the worst kind of repetition of a previous era when so many lost so much money and never came back.

 

I predict that Groupon could be very much like CBS MarketWatch, the deal that launched hundreds of dot-coms with its opening a fivefold increase from the pricing.

 

That's right. You heard me.

 

I think Groupon could repeat that travesty, and no one, certainly not the Securities and Exchange Commission, is flagging this. All the SEC cares about is disclosure, not manipulation to cause a pop, which is what's happening here.

 

So go get as much as you can. The stock jumped nearly 50% in its debut Friday.


But figuratively, here's your hat, what's your hurry, and don't let the Groupon door hit you on the way out this afternoon, which I suspect could be about the high point of Groupon's trading.

 

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Action Alerts PLUS, which Cramer co-manages as a charitable trust, has no positions in the stocks mentioned.

 

jim cramer
Jim Cramer
is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for his charitable trust.

 

22Comments
Nov 4, 2011 10:02AM
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Good information on the rigged ipo game. Cramer needs to side with small investors instead of trying to play both sides. cnbc (aka. can not buy credibility) plays on the side of shills and political hacks and can not be trusted.Buy American and support our Troops.

Nov 4, 2011 12:30PM
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Google did offer these guys 6B and they turned it down... you may think "these guys are really motivated and passionate about their product, do they really think they have this market cornered?"  Not really, their tactics have been very unconventional in the startup world paying out $930 million to employees and investors; astoundingly, out of the $130 million it raised in one round, $120 million went to the founders' pockets.  Who takes almost all the cash in a company and pays themselves early... especially if their expecting huge growth?  Reminds me of Indian companies during the offshore boom 15 years ago.

Cramer is right... don't let a bunch of money manipulators market an IPO.  My grandparents are watching TV saying "look at that new Groupon company, that's some pretty cool stuff lets buy shares... my Grandson would be so happy to know we are investing in the future of American technology".   Technology my a$$, making money from nothing for some fortunate few will not take this country anywhere.  You may think there is something illegal about this... nah, taking money from the ignorant has never been illegal.  All this means is executives were in cahoots with their VC's, building a brand and marketing reputation while seemingly risking little in the process by pocketing most of injected cash and showing amazing trajectories for revenue and cash flow.  Their targeting the 99% while the 1% is watching with a grin on their faces because its reassuring to know how we got here... a little brains, research and one golden rule.

"There is no easy money!"

All you guys that are saying "Hey Groupon is amazing for me, it gives me 50% off my burger at the corner Deli... Americans are saving money!".  Wake up, most of Groupon's deals are discounting local mom and pops to a negative margin just so they can compete with large conglomerates, and hope to get repeat business.  The idea is great, but your just trading money around... there is no growth in that... there is no IP in that, you cant sell that to other countries.

Look at startup's that actually create something... ones built with integrity, conservative means and a long term strategy.  The best I can hope for in Groupon's scenario is that a few good Computer Engineers make millions on this IPO and go make some startup's of their own worth a damn.
Nov 4, 2011 11:55AM
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Let's not forget that Google offered to by Groupon for $6 billion and Groupon turned them down.  That should tell you something about the decisions that Groupon management will make after the IPO.

 

I was thinking of starting my own competing coupon website.  Let's see.  That should cost me all of $20 to start.  The barriers to entry for Groupon competition are incredibly small.  Groupon will probably be known as GroupPoopOn within a year or two, if you can remember it's name at all by then.  Hey, Groupon employees:  Get ready to head back to your old job at the mall selling cell phones.

Nov 4, 2011 12:41PM
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People that buy IPO's are not investors.  They are speculators.  Greed is a funny thing.  So many people are mad because they made bad decisions.  But instead of learning the simple financial lessons, they blame others and then keep making the same mistakes.

If you avoid IPOs' and focus on established business's do you miss out on the big run-ups?  Yeah.  And the collapses too.  Cause let's be real.  Only a small number of companies that go public survive.  and do you really think an ipo is going to be 'undervalued'?  Seriously, it is priced at the MAXIMUM amount that they can 'kinda-sorta' justify.  And you are willing to pay more?  Whatever.

Nov 4, 2011 12:07PM
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The reason groupon is selling like crazy in the first hour, is because its a new stock and everyone is jumping on it to pump it up. But Kramer is right, Investors are going to make thier chunk of money on the rise and bailout, then its going to bust and the stock will drop back to lower price with not as many investors. IZEA did the same things it started out and went for a run, now it is like $1.20 from $2.50 a share.
Nov 4, 2011 12:36PM
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If you owned a business and tried to offer a Groupon coupon, you would realize quickly, as I did, that the management and employees seem to go out of their way to make things complicated.  After 3 weeks, I gave up figuring I could send the same deal to my database quicker and with more control.  If they run the company like they do the acquistion of new business couponers, they are doomed.  Would not consider buying this stock after such a disappointing experience.
Nov 4, 2011 12:01PM
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is groupon just selling us there debt. like dunkin donuts?? and then kill it with 22 million more shares later on?
Nov 4, 2011 12:01PM
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I  can hear the mantra now--"THIS TIME IT WILL BE DIFFERENT" vs. the late 90s pets.com et al.  KABLOOEY!   The bubble will burst and it will be HUGE!, as Donald Trump would say.  Right on, Mr. Cramer. 
Nov 4, 2011 1:07PM
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This company has a life expectancy of less than two years.  Its already losing out to competition because the "business" is so easy to duplicate.  Its just advertising in a different form.  How long do ad campaigns run?  This outfit needs to hire the Polish pilot who brought his plane in for a safe crash landing.
Nov 4, 2011 12:41PM
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Is anyone really looking for Groupon for longterm investing? :)  He is right.  Ofcourse its going to blow up only to come crashing down.  Take advantage of it and get out.
Nov 4, 2011 1:37PM
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Jim Cramer IS A CROOK!!!
Is our collective memory so short that we can't remember the December 2006 interview where he admitted to using hedgefund capital to manipulate stocks?
Nov 4, 2011 11:21AM
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history lesson

the shyster said buy as much of the gm ipo as possible below $34....

of course it was another pump and dump and gm has been stuck in the

20's ever since...........a healthy 30+ percent shave for cramericans

 

groupon might be a buy if the stooge doesn't like it 

Nov 4, 2011 12:49PM
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Unfortunately for me and my 401k, I don't have alot of faith that the guy managing the company's portfolio I contribute to has enough sense as to when to get out!
Nov 4, 2011 12:45PM
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Probably being run up by the dolt that manages the 401k portfolio I  invest my only retirment funding in!

 

Nov 4, 2011 11:53AM
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i see two nay votes on my gm comment..........research my claims ....i don't make this stuff up

 

Nov 4, 2011 11:49AM
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Jimmy Boy when you say get as much as you can, does that mean I should take every last dollar I have and buy this stock??
Nov 4, 2011 12:43PM
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Grunchfur

Wonderful idea!  Let's go play 'catch a falling knife'!  You won't get cut cause your smart!

Bwaaahaaahaaaa

Nov 4, 2011 2:55PM
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This is one of the few times you'll see me write this: Cramer is right. Usually, he knows nothing. 
Nov 4, 2011 11:57AM
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There is an animated Commercial on YouTube, search  "Camel Auction"
It's very timely now.



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