On Tuesday, Groupon's stock fell 19 percent, hovering just above its original $20-a-share price of the company's recent $805 million IPO, starting the morning at $20.03; today the daily deal site's stock is down further to around $17 per share. This recent descent has pushed many to declare Groupon's bubble all popped. But didn't we see this coming? Groupon had a murky business model going into its IPO. And its path forward isn't getting clearer. Just on Tuesday, we saw yet another a story of a Groupon deal gone sour, this time for a cupcake bakery, which lost $19,500 from a too-popular Groupon deal.
Groupon's bubble was bursting even before the company went public. Small businesses can't handle the influx of customers and the deal ends up hurting the company more than helping. The cupcake owner's story follows this story that we've heard many times before. Only prepared for a thousand orders, Rachel Brown's bakery was overwhelmed by the Groupon cupcake deal, which brought in over 8,500 orders, forcing her to hire additional hands to help with all the extra baking. Meanwhile, she feared she would put out a lower quality product during a time in which she was supposed to be impressing new customers. A lose-lose situation. At the end of the mess, she lost $19,500 -- a full year of profits. Brown said it was the "worst business decision" she has ever made, according to The Telegraph's James Hall. Neither did she make money nor get good marketing off the deal, something a Groupon partnership promises. "We are still working to make up the lost money and will not be doing this again," she added.
Of course, this week's market beating isn't just about this one cupcakery, or even unhappy participating businesses. When Groupon went public and its stock popped, it was inevitable that it would fall. Other factors are at play here. In addition to "concerns about the health of the e-commerce market" analysts told The Wall Street Journal's Randall Smith and Shayndi Rice that "rising competition, as well as factors that may have helped short-sellers" contributed to the sell-off. But having a bad business model isn't helping. The daily deals site shine has been fading for months. Businesses don't want to get involved. Potential coupon users don't find the deals useful.
This article is from the archive of our partner The Wire.
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