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Groupon Groupthink Gets Bubbly

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One of the marketing tricks that Wall Street likes to pull these days is that they’re “experts”. The ballooning banks, ratings agency scumbags, and hedge fun hyenas front their operations with learned economists, know-it-all analysts and other sundry eggheads who ponce around on radio and TV just to give the world the impression that their company’s greed is backed up by, you know, hard facts.

Of course, it’s all just marketing BS. 99% of them don’t know shit from shinola.

After the debacle that was the ’08 financial meltdown you’d think we’d have got the message that they’re nothing but pump and dump guys in decent suits. But we haven’t.

Now Thereisnoplan doesn’t pretend to be an expert in IPOs and all that jazz but it seems to me that there’s something decidedly fishy about all these fabulous valuations that are flying around for tech companies these days.

Take LinkedIn. Huge valuation in the billions despite being barely in the black after years in business. And then a huge opening, despite an awful lot of talk that it was a prime candidate for short selling. Or how about Groupon, valued higher at it’s IPO than Google was at its maiden moment in 2004 despite having a business model with no barriers to entry, massive marketing costs conveniently kept out of their accounting approach, and declining revenues per subscriber according to some in the know. And of course, waiting in the wings to cash in is the Granddaddy of them all, Facebook, currently valued at $80 billion, against profits of, uhh, who knows, and ballpark revenue of $2 per user per annum.

It certainly feels like there’s a bubble on the horizon. After all, while the middle class is applying for jobs at Walmart, Wall Street and the high-rollers clients feeding at its trough are looking at an 80% bounce off the lows of late 2008. Nobody talks about a dead cat bounce no more, despite an awful economic outlook for the mob out in Main Street America.

The fat cats have a big stash and they want to play again. And what better place to put their fooling-around dough than in those ‘sexy’ Web 2.0 startups led by mega-smart and deeply amoral wunderkinds. Those fat cats love the idea of valuations rising faster than a souffle in a microwave. And they don’t seem to care that the game is stacked.

You see, the funny thing about valuations is they’re essentially meaningless. If someone overpays for a piece of the action, the whole company gets a bump in valuation. It starts with the VC guys. After years in the dumps, and portfolio after portfolio of sucky investments, they need winners, which is why they focus and feed the media on the chosen few. Groupon, Facebook, Twitter and to a lesser extent that happy stalking horse, LinkedIn. They fluff the valuations of the ‘winners’ with timely investments at prices which neatly pump valuations.

Then the banks sniff the cash opportunity, like flies around shit and get in on the act. Goldman Sachs tells its managers to pump Facebook and the others at any price (gussying up their pitches with fancy reports and presentations), then the valuation goes up when big time suckers (worldwide) step up (which is fee number one for the GS boys), and the valuation keeps on rising. Which is even better for GS because that huge valuation feeds a massive IPO which means even more bigger fees for them, when the stock goes stratospheric at the opening bell. A while later, the VC boys get to cash out with a win when their A shares go nutso in the first week or two. And the founders get fabulously wealthy too. It’s a win-win-win.

Who cares if the company has limited profit potential, doesn’t make anything, employ anyone (well, except geeks), or has prohibitive customer acquisition and retention costs?  Who cares if they’re time-wasting drains on productivity, of limited value to marketers, and eminently replaceable with the next big thing? Who cares if most of the dough they earn in the long run comes from crappy ads, data-mining, and brand-diluting coupons?

By the time anyone notices that they’re at best marginal businesses and at worst turkeys, the front money has long gone, the short guys have come in for the post reality check second act, and the rest of us poor schmos are finding out whether we got that gig at Walmart or  not.

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Written by coolrebel

June 4, 2011 at 11:14 am

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