Tiger Global Reveals New Groupon (GRPN) Stake ~ market folly

Tuesday, November 20, 2012

Tiger Global Reveals New Groupon (GRPN) Stake

Chase Coleman's hedge fund firm Tiger Global Management has revealed a new position in Groupon (GRPN).  Per a 13G filed with the SEC yesterday after market close, Tiger Global has disclosed a 9.9% ownership stake in the company with 65 million shares.

According to Tiger Global's most recent 13F filing, the firm actually started their position in the third quarter as they owned 1.3 million shares as of the end of September.  However, they've obviously ramped their stake up considerably since then.  The 13G disclosure was filed due to portfolio activity on November 9th.

Groupon's Struggles

Shares of Groupon (GRPN) have been targeted by short sellers ever since its IPO as the company has struggled to gain footing.  Shares are down 87% since it came public.  And, with good reason.

The company originally started out in the "daily deals" space offering consumers deals on various products and services in local areas (an industry that has practically no barriers to entry).  Amazon.com invested in fellow-daily-deal-site LivingSocial and recently had to write off $169 million of their $175 million investment.

Groupon has amassed a large audience, but as the company has matured, they've flailed around with other ideas, trying to grasp on to a business model.

For instance, Groupon also entered the highly competitive payments industry when it launched 'Breadcrumb,' a point-of-sale system targeted at restaurants to allow them to run their business smoother.

They also expanded with "Groupon Goods" where they acquire physical items, hold the inventory, etc.  This segment has boosted revenues, but not necessarily profits.

Additionally, the company recently opened a physical concept store in Hong Kong as it attempts to provide a place for customers to buy and redeem products.

Some investors have called for founder & CEO Andrew Mason to step down.  Short sellers, on the other hand, love him as he doesn't seem to care about profitability.  Insiders currently own just under 56% of the company.

Why Buy Groupon Now?

The main question here is why is Tiger Global buying now?  Did it finally become too cheap?  As of the end of September, the company had $1.2 billion in cash and a market cap of only $2.2 billion.  Keep in mind that Google once offered $6 billion for Groupon a long time ago.

But as MicroFundy pointed out recently (his whole piece is worth reading), if you focus on the details, Groupon has $1.2b in cash and equivalents, but "$573m of that is owed to merchants and another $245m is set aside for things like refunds & subscriber awards.  All in all, when you look at the company's balance sheet, their current assets only exceed their current liabilities by a little more than $300M (or .47 per share)."

Tiger Global is known for making savvy internet investments (buying a stake in Facebook back when it was private being their most notable).  Perhaps they see GRPN as cheap?  Perhaps it's a potential takeover target?  Who knows, this is all speculation on our part.

A Few Other Hedgies Bought GRPN Too

John Thaler's hedge fund JAT Capital also purchased shares of GRPN in the third quarter.  According to their most recent 13F filed with the SEC, JAT bought over 9.4 million shares.

Even if JAT managed to buy GRPN at its lowest point in the third quarter (and assuming they still own it), they're still down on this position.  The news of Tiger's entrance, though, has boosted shares over 9% today.

Soros Fund Management also disclosed a position in GRPN in their Q3 13F filing: 2.5 million shares.  While these funds owned GRPN as of September 30th, there's no way to know if they still do.

There's also no way to know exactly how many hedge funds are short the stock since they're not required to disclose this.  However, in our conversations with various portfolio managers, there have been quite a few shorts in this name for some time.  And looking at Groupon's short interest, it appears as though 36 million shares were short as of October 31st, with that number peaking at 55 million back in July of this year.  

So as shares of Groupon have slid continuously, will Tiger Global's new big stake stop the bleeding?  It has, at least for today.  What happens in the future remains to be seen.

Why do you think Coleman bought GRPN?  Let us know in the comments.

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