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"
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:
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.
