Reader Question -- Groupon (GRPN) + Reverse Stock Split

So I am grateful for anyone that takes time to read my posts because to me I hope these posts light a fire under you. If Not Now Then When? When would you like to live in a world that breaks the chain of class systems and systemic racism. When do you plan to wake up and realize that you are responsible for looking out for your family and love one's best interests (a stimulus check isn't enough to get it done). If that means studying, working out, enlightening yourself, legitimate hustling, making a plan to exit the rat race --- are you ready to put in that type of work. The work I used to put in gym, on the field not knowing if it meant I was even going to make the team, have a starting position, or succeed at life. You have to plant that seed early and work at it every single day.

I always joke the best class I ever took in college was Probability/Statistics. When you learn about decision trees, life becomes so much easier. When you learn how to apply that to risk management, hard decisions are not so tough. I spend most of my time assessing risk to help make sound decisions. When I got this question from a reader, I welcomed their trust in my thought process but I also challenged them to do a risk assessment. Because these assessments are life assessments --- calculations we all make everyday which turn into investments. And we much invest our time wisely as we only get one chance to be great.

Reader Question: "Good stuff man - I would love to hear your thoughts on Groupon's reverse stock split 1-20"

https://www.businesswire.com/news/home/20200610005139/en/Groupon-Announces-1-for-20-Reverse-Stock-Split

Company Description:

Groupon (NASDAQ: GRPN) is an experiences marketplace that brings people more ways to get the most out of their city or wherever they may be. By enabling real-time mobile commerce across local businesses, live events and travel destinations, Groupon helps people find and discover experiences––big and small, new and familiar––that make for a full, fun and rewarding life. Groupon helps local businesses grow and strengthen customer relationships––resulting in strong, vibrant communities. 

Groupon (GRPN) Risk Assessment 

I don't do risk assessments much on paper anymore but when I do I really enjoy the process. It reminds me of when I would hear people describe the habits of great rappers --- and they would say "You Know Biggie didn't write down any of his raps". A quick nod to the greatest rapper of all time, the Notorious BIG. I guess risk assessments start with personal questions...do you work here, why risk assess it now, have you risk assessed it before, what's changed since then. So here goes my GRPN Risk Assessment:

Geopolitical (Country) Risk: GRPN is not being purchased by a foreign entity but I do think it's important to highlight this risk. While the USA is viewed as safe, I recall sparring with a colleague over whether US companies should consider geopolitical risk in their equation. The greatest country in the world has no risk I was told and I quickly reminded him about 2008 and the fact that if it was NOT for TARP and massive bailouts we would have seen the financial system implode. So quickly, I think that GRPN and every US company faces country risk as the divide in US wealth, health, and resource gap grows deeper. The erosion of the middle class IMO means the pie of strong local businesses GRPN is trying to grow and stregthen is shrinking. We haven't even talked about COVID-19 but shocks like this to the US system seem to be taking a huge toll on the economy (i.e., every time we have a crisis...it's NOW the greatest crisis since the Great Depression). 

Operational Risk: I looked back and realized I've written about GRPN roughly around 5 times. You can use the search bar to see my previous posts. What shocked me is how NOT much has changed in the 7-10 years since I last wrote about them. See here: https://urbanomics.blogspot.com/2013/07/same-companiesnew-tricks-mcdonalds-best.html

In the 2013 post provided above, I wrote about the fact that I didn't have an account and the company hadn't won me over in needing to do so. Some of their tactics felt like tricks, gimmicks --- which weren't working. I look at their company description and I struggle with what it means to find experiences. Do they use AI and know I like sports, so they will find me tickets to the Superbowl at the best possible prices? Are they a travel company -- because Expedia, Travelocity, and even Airbnb talk about experiences? Clearly the operational execution isn't clear because I don't understand what they do. I thought they still provided discounted offers for merchants who wanted to increase foot traffic. A great idea I would say if you GRPN were to sell themselves to Uber or Lyft or Match. I like discounted restaurants and experiences when I'm dating, in a car, in a hotel or Airbnb. As a standalone company, I'm not sure it makes sense...as an extension of a big data company OR a swipe right dating company or a ride hailing company --- damn that would seems like a good fit.

Financial Risk: The stock price says it all. Most companies only do a reverse stock split for one of 2 reasons: a) Unable to meet stock market listing requirements (i.e, the stock must be above $2 a share or you get the boot) or b) you want to "trick" investors by having a nice round number above $20 bucks so investors take you seriously. have I seen this yes -- take Citigroup during the 2008 financial crisis they did a reverse 10-1 stock split as the stock remained in the low single digits. Full disclosure, I've done no research but I would say the stock is saying something as it struggles to GROW organically through earnings.

Summary: At this point, I can not invest in GRPN unless it's purely a binary investment --- heads they put themselves up for sale, tails they go bust. Using poker language, you would be getting great odds IF you thought they were going to strategically look for a buyer. The economic toll of COVID-19 doesn't help because IF they were to have bought another company (Pinterest, Lyft, Yelp, Angie's List, Match) it might have gotten done with greedy bankers looking to finance everything just a year ago (when money was flowing). GRPN needs to fine tune the strategy because the value lies in knowing what I like and getting it to me quickly and possibly through another 2nd choice/off-brand competitor IF the discount is nice enough. Funny this was my rationale for GrubHub (GRUB) as well --- it's pure binary AND at least they delivery it too me. They were burning through CASH left and right and were NOT at risk in the future in a very competitive environment. They are not a delivery company, direct travel and experience board, DIY board, or dating site --- so at this point the RISK vs REWARD is just not there.

Investing Like the Godfather of Harlem

Investing In Yourself – Using Pillars to Build Your Core	https://urbanomics.blogspot.com/2015/04/urbanomics-pillars-path-set-for.html
Setting Budgets + Saving for Black Swans	https://urbanomics.blogspot.com/2013/02/personal-finance-budget-101-free-credit.html
	https://urbanomics.blogspot.com/2019/11/hey-henry-high-earner-not-yet-rich.html
How to Open My First Brokerage Account	https://urbanomics.blogspot.com/2015/04/personal-finance-101-starting.html
Diversify your Life (Mind, Body, Soul, + Investments)	Search My Blog

If Regular People Did That Sh!t

Legal Tax Evasion – Just when I’d like to think sometimes I've hit rock-star status (blessed with a great family, job, friend) , I remember listening to Lil Wayne’s lyrics. Wait for it – “We are not the same, I am a Martian” 👽.  This subtle line he’s repeated in his songs is to remind many of us, we are NOT on the same planet as he is. Disregard the facial tattoos , the fact he signed Nicki Minaj + Drake to his label (Young Money), or the fact that he started rapping at 13 years of age, it’s pretty easy for me to realize I got some work to do before I hit legendary status and can simply be recognized by my nickname known worldwide (Lil Weezy).  Well my ‘If Regular People’ post is a quick reminder to most of us to stop and think, while your political vote may represent what you aspire (e.g., tax cuts, small government, less regulation, etc.) you are not a Martian like those super rich who truly benefit from those policies.  Read my last post, if you don’t have enough money and connections like Carlos Ghosn has to escape prison in another country (while on trial) using private jets and jumping into speaker boxes then…you might just be a human being…not a Martian 👽.

My next example is some sh!t truly only rich or wanna be rich people have time to think about and benefit from. So I was reading an article about conservation easements. To cut to the chase, this is a law that allows someone owning land to claim they are protecting land from being developed. You get to claim that you have saved the world by reducing pollution and maintaining its natural beauty (since it goes undeveloped) AND you depending on the value of the land…you get to deduct that sh!t from your taxes.  I’m trying to not fall out of my chair laughing😀! This tax loophole is getting abused (see the IRS Dirty Dozen tax loopholes) more than “instant replay” in professional sports at the moment – and that’s a lot. If this isn’t rich people abuse, why can’t I buy up all the land in the hoods across America, mark up the price even further, and sell tax credits (i.e., charitable donations) to my people in the hood who really need it? I could demolish all those bandos and get rich while doing the public a favor??  Who should be ashamed of themselves – the Rich people hammering this loophole, the government for letting this continue, or the disillusioned people who think they are voting for policies like these which are not really helping them out??

Well anyone using this loophole is also making it very clear to the rest of us -- that use a tax software (me) or ‘claim’ we have an accountant that used to work for the IRS -- YOU ARE NOT A MARTIAN.  For us regular people, remember invest in yourself, diversify your life, and let’s change the game.

Link: ProPublica - IRS Non-Crackdown

Investing Themes for 2020

Please remember, I primarily use a data driven approach to investing.  I like to review data and events that were successful in the past and use those patterns to see if they will be successful in the future. This helps me take the emotion out of my investing. To further reinforce this I tend to set up trade alerts and purchases when I am doing my research and analysis – these are set well in advance of buying a stock so I often don’t know: a. what date I will purchase a stock (if at all) + b. why I liked the stock so much (so I take notes or blog about its potential to serve as a reminder). I also try to see if a theme is emerging from my data (so I can hammer the trend further with even deeper analysis) and I corroborate my thesis by trying to see if my Billionaire buddies (Ray Dalio, Mario Gabelli, Warren Buffett, David Tepper, Carl Icahn, David Einhorn, etc.) have mentioned these themes whenever they speak on TV or at conferences.

·          Streaming Media + Sports + Gambling

o    Media - So you want to play the streaming craze. The trend starts with high flying stocks like Google (think YouTube), Netflix and Roku. Then add Disney if you like Hulu (yup, Disney owns a large portion of Hulu). But media is now king! Don’t believe me, please watch the amazing series – The Godfather of Harlem on Epix. This is a great example that content will likely win the war…so go out and buy the content media companies that Netflix is paying top dollars to be able to stream their shows. 

o    Sports - It’s no secret that for live TV, sports is the last game in town. Revenue deals with sports teams are through the roof as new social media companies fight regular cable companies to offer live sports. Don’t believe just check out Hulu ridiculous commercials stating “Hulu Has Live Sports”. Next, get paid for something you love doing – watching sports. Do me a great favor and compile a list of all of the sports companies that are public companies. Trust, it’s cool to say you’re an owner and it makes the season a lot more interesting when you invest in shares of a sports franchise. I keep a mental list of a few sports teams that I know are public: Manchester United, Atlanta Braves, New York Knicks

o    Gambling – If the economy is doing so well, why are states scrambling for your gambling dollars.  States all across America are rushing for the 21^st century gold mine – Gambling. Casinos are Sport Betting no longer taboo. With the likes of FanDuel, DraftKings, and your local casinos offering mobile and physical sportsbooks, respectively state are raking in dollars. Many more states will follow the trend and the industry is already noticing the trend of bets being placed on mobile phone within a 15 mile radius of state lines where gambling is not offered.  Again the data don’t lie, people are showing they are willing to cross a border just to place a bet on their phone in a state where sport gambling is offered and then they head home.  

·          Cyber + ME + Social Media

o    Cyber: Cybersecurity will continue to be a huge force. Stay tuned for a separate post on stocks in this space and read my previous posts on the names I’ve traded.

o    Social Media Stocks – I have resisted the temptations of being on Instagram, Twitter, and Snapchat – but we’ll see how long the holdout continues. The world is telling you they want the attention to be all about them and what better platforms to scream to the world. So invest in social media companies because people are addicted and until people and possibly the government change the trends I’m seeing it will continue to be consumed. (Don’t believe me: see Apple’s new slow-mo selfie commercials) smh

o    ME – If you notice the consistent theme of what my data analysis is telling me is that people are using more and more things that have addictive qualities: TV binging, Gambling, Sports Betting, Social Media, etc. So the next surprising trend is people buy more things that allow them to look glamorous on social media. There is nothing better than TEETH and makeup. Yup, I’m positive Align Technology and Smile Direct Club are showing up in my research because people want straighter and whiter teeth to FLOSS on social media (no pun intended). Invisalign and Smile Direct are straightening teeth all across America. I was watching something about interesting entrepreneurs and this trend fell right into my lap. The entrepreneur got into the teeth whitening space very early and he attributes much of the success of his very lucrative business to the rise of social media and influencers (funny I thought selling yourself to another person was illegal). Or my small investment in Coty, guess whose cosmetics line they a bought 51% stake in shortly after: Kylie Jenner’s Kylie Cosmetics for roughly $1.2 Billion. Next what’s says, I’m into me better than Pinterest. It is now the 3^rd largest social media platform and it’s nothing more than a visual post-it note telling myself to buy more things for ME. If my thesis is correct and the world is getting more addicted (mainly to itself) this is great for Pinterest and the decline will be seen in church congregations across the world. The final ME investment is being consumed similar to TV, Social Media, Gambling, and Sports Betting -- its Medicinal and Recreational Marijuana. It was a CRIME to lock people up for something that people are lining up and down the streets to participate in legally.  Weed stocks are very volatile but will continue and have made many people rich legally while it funded the criminal justice system coffers (by locking up the so called gangsters) for so many years.  Now states want in on the action, even though there is no universal Federal law allowing the consumption of recreational weed. While there are too many stocks to name, you’ll see a few listed here: Aurora Cannabis, Cronos, Tilray, Canopy Growth, GW Pharmaceuticals, Cresco Labs, Acreage Holdings all play in the marijuana space.

I’m not judging on any of the trends above and will invest where I truly believe the market is going. But while I do, I can personally decide what I will participate in and won’t. So for now I guess you can call me the un-social media, non-gambling, non-smoking, slightly TV binging guy (The Godfather of Harlem, Power, NFL, + NBA) – hey Lil Wayne…maybe I am a Martian too.