Groupon: from Darling to Outcast

Absrtact: "Editor's note": MarketWatch columnist Pleti (Therese Poletti) points out that both Groupon and Zynga's two former darlings are now encountering great difficulties, though they may have found the right strategy and embarked on the right track, but he

"Editor's note": MarketWatch columnist Pleti (Therese Poletti) points out that both the former darlings of Groupon and Zynga are now encountering great difficulties, though they may have found the right strategy and embarked on the right track, But whether they have enough time to reach the desired end is doubtful, as the patience of the market is fading away.

The following is the full text of Pleti's comments:

In fact not so far away in the past, they have also been a fast-growing technology industry nova, social media fanatic darling ... But this WTF.

Zynga Inc. and Groupon Inc. They were all favored by financial media, touted for their fast-growing businesses and ballooning revenues. Investors seem to have enough reason to believe that second-generation Internet companies are fundamentally different from the first generation of the Rice bubble era.

But in fact, early in the group buying company Groupon Inc. (GRPN) and gaming company Zynga Inc. Some early warning signs were already znga before the IPO stage in 2011. On the eve of the listing, two founders of the company used private equity and secondary market transactions to cash in on their stakes. The two companies have adopted a dual-equity structure that gives founders a firm grip on decision-making, with shareholders without a beak.

Now investors have to pay for their own indulgence. Groupon's shares, which were priced at $20 in November 2011, have fallen by about 70% since then, while Zynga, which has been on the market for 10 dollars in the late one-month period, has lost its size. All two companies are doing their best to prove that their business is real, not just the product of a social media bubble, by reinventing themselves.

But the patience of investors has persisted, especially last week, when two companies also posted disappointing results. While the founders of all two companies have left, and layoffs have been made, they have been hard to satisfy Wall Street in their specific performance. As of today, nearly three-fourths per cent of Groupon's 11 earnings were either performance or financial disappointment, compared with more than half of Zynga's earnings.

The situation is now clear, even if the two companies have been able to pass their own turning points, and the latter will come much later than many investors had expected.

For example, Groupon, the Chicago company, is planning to send its own offers from email to web-based, which costs much less. Groupon now sells a lot more discounted physical goods than before, and they set up distribution centers in Kentucky State. They obviously want to be able to morph into ebay[micro-blogging]inc. (EBAY) and Amazon (AMZN) rival E-commerce giants.

"Management does have a solid strategy to get their business back to their previous growth trajectory, but their concrete implementation remains a difficult impression," Jefferies analyst Pitts Brian Pitz in a study. ”

Eric Lefkofsky, one of Groupon's chief executives and founders, made a positive statement at the company's Lefkofsky, saying "We made quite a lot of progress in the second quarter" and stressed that nearly 92 million users downloaded their new apps. The company, which grew at a rate of 23% per cent for the second consecutive quarter, revenue a two-digit increase in the previous three quarters, but at the same time the losses continued to widen as spending grew.

The trouble is that some are already skeptical that Groupon is likely to be unable to really do its transformation. Their business traffic, currently directly from the site is insignificant, only the equivalent of one-tenth from the mail. On Wall Street, 62% of analysts gave Groupon a rating of 29% to buy and 10% to sell.

As for Zynga, the company's starting point was to develop casual games based on personal computer Farmville, and now they are planning to move more into the mobile world. But in a world of games that may be forgotten at any moment, they have almost no work in the last quarter, only to launch the mobile end of Farmville 2. So far, their performances have been disappointing. Investors are worried about their prospects for their product lineup, and are expected to release only two or three games in the second half of the year, with real big moves, at least at the beginning of next term.

Janney Capital CMC analyst Weibull (Tony wible) stressed that Zynga's average per-user revenue is slipping, meaning that some "dollar players" are leaving.

"Given the background of Farmville 2 in this quarter, the decline in per-user revenue is a disappointing sign," he said. "The reduction in per-user revenue may mean that the user's interest is fading on average, which may be a sign that Zynga's dollar players are decreasing and new users are lower value," he wrote in the report. "Wall Street's overall view of Zynga is not optimistic, with a 75% rating of holding, 10% buying and 15% selling."

Before being exiled, one of Groupon's former chief executives and founders, Andrew Mason, once disclosed that they deliberately displayed the cover of Forbes magazine coverage in the company and put it together with the record of the dotcom bust. Remind yourself that success is fleeting. If history really shines into the future, then we should say that the glorious days of Groupon and Zynga have become the past.