I Was Fired

Not me. Andrew Mason. The founder and CEO of Groupon. His letter to employees and the fact he publicly posted it because he knew it would leak are classic.

People of Groupon,

After four and a half intense and wonderful years as CEO of Groupon, I've decided that I'd like to spend more time with my family. Just kidding - I was fired today. If you're wondering why... you haven't been paying attention. From controversial metrics in our S1 to our material weakness to two quarters of missing our own expectations and a stock price that's hovering around one quarter of our listing price, the events of the last year and a half speak for themselves. As CEO, I am accountable.

You are doing amazing things at Groupon, and you deserve the outside world to give you a second chance. I'm getting in the way of that. A fresh CEO earns you that chance. The board is aligned behind the strategy we've shared over the last few months, and I've never seen you working together more effectively as a global company - it's time to give Groupon a relief valve from the public noise.

For those who are concerned about me, please don't be - I love Groupon, and I'm terribly proud of what we've created. I'm OK with having failed at this part of the journey. If Groupon was Battletoads, it would be like I made it all the way to the Terra Tubes without dying on my first ever play through. I am so lucky to have had the opportunity to take the company this far with all of you. I'll now take some time to decompress (FYI I'm looking for a good fat camp to lose my Groupon 40, if anyone has a suggestion), and then maybe I'll figure out how to channel this experience into something productive.

If there's one piece of wisdom that this simple pilgrim would like to impart upon you: have the courage to start with the customer. My biggest regrets are the moments that I let a lack of data override my intuition on what's best for our customers. This leadership change gives you some breathing room to break bad habits and deliver sustainable customer happiness - don't waste the opportunity!

I will miss you terribly.

Love,

Andrew

The guy does have reason to be terribly proud. My take is that moving on is the best thing for both Groupon and Mason. The guy is set and it will be interesting to see his next adventure.

Have the courage to start with the customer. Good advice.

Facebook's Impact On Startup Valuations

Seems to be quite the subject these days.

Paul Graham says, or at least an investor does, that startup valuations are heading south. Fred Wilson pretty much agrees for later stage companies (and agrees that FB is overvalued).

My take. It does not matter. Unless your startup has over 50% of the U.S. using it, has raised hundreds of millions of dollars in venture capital, went public at a $100 billion valuation, shrewdly maximized the money put in its coffers by pushing its IPO price to the limit, and you have somehow managed to remain CEO while still controling the company. Then it matters. That has happened once in the history of the world. Facebook, like its purchase of Instagram, is an anomaly. It does not matter.

Sure early stage valuations may come down. They should. What Facebook has shown is that private valuations are out of line with public valuations.

That does not mean startups can not raise good money or find good exits. While the argument can be made that the Facebook impact had not worked its way through the system yet, Oracle's purchase of Vitrue for a reported $300 million and Salesforce's purchase of Buddy Media for $689 million are exhibit A and B. Both companies in the social space. Both companies with solid exits for all involved. Both companies valued at north of 10x revenues. Everybody is happy.

For the vast majority of startups Facebook's impact on valuations does not matter. It is an externality that may not impact you and even if it does it is one that you can not control. Go build your business with a focus on getting to profitbility with as little investment as possible.

You do that and everything else will take care of itself.

Facebook Is Overvalued

Before I go any further I want to give some kudos to Facebook. More than half the people in the United States use the social network. I think the number something is like 900 million worldwide. Facebook is an important consideration for any marketer. And you have to give it to Zuck. Despite donning a hoodie at inappropriate times he has matured as a business leader. He is completely in control of Facebook. And a billionaire before 30. 

So great job to all the good folks that work at Facebook, their investors, and the founders. At 11:00am today Facebook is going to go public and their life will change forever. Congratulations.

With that said, Facebook is going public at $38 a share. That $38 puts the company's market cap at $104 billon. That is the biggest IPO valuation ever by an American company. It will make Facebook the 23rd largest US company by market cap (larger than Amazon) while being beyond the 900 mark in terms of annual revenue. 

Last year Facebook had $3.7 billion in revenue and generated an even $1 billion in earnings. The valuation is 28x revenue and 104x income. The P/E is 106 compared to Google's 18. The stock may pop today in a frenzy, driving these multiples and ratios even higher. Seems a little rich. 

Facebook, my friends, is overvalued.

Is Facebook A Fad?

That is what the survey says.

Think Different

Correcting the Cat

Over on the Groupon blog Groupon the Cat is creating quite the ruckus. It seems like Mr. Cat wrote a little blog post about "The Groupon Guide to the "Quiet Period." In it Mr. Cats states:

The “Quiet Period” is the time right before a company “goes public,” during which it is legally prohibited from saying anything to the press that may make the company look “good,” “successful,” or “not currently on fire.”

Not that I get great joy pointing this out but Mr. Cat is wrong. During the quiet period a company is indeed not allowed to publicly say anything that might be considered as pumping the offering. However quiet periods are not restricted to the time before a company "goes public". They generally apply anytime a company issues a new public offering regardless of if that offering is the initial public offering or a subsequent offering.

In 2005 the Security and Exchange Commission modifed the quite period rules so that they did not fully apply to "well-known seasoned issuers". Well-known seasoned issuers must either have a publicly traded market capitalization of at least $700 million or have issued at least $1 billion in securites other than common equity over the past three years. These well-known issuers represent approximately 30% of listed issuers and accounted for about 95% of U.S. equity market capitalization. 

So regardless if it is your first public offering or your tenth, if you are in your registration period you are required to be quiet. Even if you pretending to be a cat.

Stock Update

To paraphrase America, I tried a Q4 update, but I got so damn depressed, that I set my sights on May and got myself undressed.

Boy were things ugly three months ago.  As is the norm, Knology was the last of the stocks in my portfolio to report earnings. Here is my quarterly (well bi-quarterly) stock update.

AAPL.  What a yo-yo.  $160 to $200 to $120 and back to $190.  I have faith that the penetration that I am seeing in the world of geeks is going to spread.  Holding.

ELNK.  Got a nice bounce to a 52 week high after the earnings call.  I sold my position.

KNOL.  Knology spent most the the last six months in a slide then got a pop on Q1 earnings.  That is all I needed to sell.  And I did. With a $3.00 basis costs $14.63 is a nice return through 41 months.  I will take a 130% annual return any day.

NFLX.  Same story as six months ago. Blockbuster pulling back on marketing and Movie Gallery filing chapter 11 results in strong subscriber growth at NetFlix.  So much for those competitive pressures that were dampening performance.  Flew up to $40 before retreating to $30.  Up 38% in 12 months. Sold half my holdings to lock up some profits.

SCUR. These guys are making me sick.  Stock has gone from $10 to $5 in the last six months.  Every time they have an earnings call the stock drops.  I have lost faith in management.  I am not alone.  At the moment there is no resistance.  I need to unload it but will wait for a little recovery before I do so.

VMW purchased the stock at $100 on what I called "recent weakness due to misplaced concerns with Dell's purchase of EqualLogic". Shortly there after they issued guidance below expectations and the stock dropped 31% in a day.  It has recovered slightly and seem volatile enough to make further gains.

I took some of the proceeds from the above mentioned sales and went a bit earlier in the food chain with some private equity investments.

As mentioned previously, I made an investment in RTEV, an electric car company run by Mike McQuary. 

I also wrote a check to Profounder, an investment company focused on turning ideas and technologies into compelling opportunities for professional investors.  The company has not launched.

Shiny Quarter

Today Knology was the last of the stocks in my portfolio to report earnings.  Here is my quarterly stock update.  It's a good one.

AAPL.  Blew right through the $160 target that I set in August and now sitting over $180.  50% appreciation in the past three months.  Given the weight in my portfolio, this explosion continues to drive overall portfolio performance growth.  Apple's CPU traction remains strong.  With Leopard, the new iPods and recently announced MacBook updates I expect a very strong finish to the calendar year.  My advice is to buy on any weakness.

ELNK.  Rolla Huff did a fine job of cutting costs and got a good pop out of the stock.  I have yet to see any potential growth strategy.  I heard the word CLEC a lot on the earnings call.  CLECs are boring.  Most likely will sell off if it pops a little more but right now it is looking pretty flat.

JOE. Joe continues fall from $41 to $32.  They swung from earnings of $6 million last year to a loss of $6.8 million this year.  Home sales are down a whopping 46%.  Gonna take the tax loss on this one.  Purchased some VMWare (VMW) based on the recent weakness due to misplaced concerns with Dell's purchase of EqualLogic.

KNOL.  Knology is up from $14 to $16 in the past three months. They just announced a solid quarter from a revenue growth perspective and entered into an agreement to buy Graceba which will fuel future growth.  Holding.

NFLX.   Blockbuster pulling back on marketing and Movie Gallery filing chapter 11 results in strong subscriber growth at NetFlix.  So much for those competitive pressures that were dampening performance.  What looked like a mistake in Q2 is a winner in Q3.   Up 24% since May purchase.

SCUR. Secure Computing has been on a nice steady upward march.  Until the earnings call.  Management gave some misguided guidance.  Regardless, the stock has returned to the $10 level it was at before the big CipherTrust sell off.  I may regret this, but I intend to sell off my stake to make my first angel investment, a bit of an energy play.

Its been a great three months with the portfolio up 13.5%.  And while there are some unique events driving the number, Quicken claims my 12 month return is sitting at 347%.  And no, I did not miss a period in there.

Quarterly Stock Update

Yesterday Knology was the last of the stocks in my play money portfolio to report earnings.  Here is how I am doing.

AAPL.  Bought into the stock in April at $100.  CPU traction was the reason.  To paraphrase Paul Graham, everyone I know that is looking to buy a computer (and has control of the purchasing decision) is looking to buy a Mac.  On top of that the iPhone is a game changer.  It is a computer in your hand that you can also talk to people with.  Early iPhone sales results has added some volatility to the stock.  Regardless it is up 36% since purchase and driving overall recent portfolio gains.  I see $160 in the near term.

ELNK. Last time I wrote about this one I said "I don't see a business in consumer muni Wi-Fi".  Well there is a new sheriff in town at EarthLink named Rolla Huff and neither does he.  Based on what Rolla said during the earnings call (the stock is down 15% since he first
publicly spoke on July 26) and my general knowledge of the ISP business here's a scenario.  EarthLink exits the Wi-Fi business.  They invest no more in Helio than what they have formally committed to and only if Sky Dayton meets certain operating milestones.  The business is right sized, resulting in a 40% RIF, perhaps rehiring in some slots with salaries more appropriate for a $1.2 billion company.  Private equity takes it out in a deal valued at $11 per share.  Wired just reported that a deal is happening a lot sooner.

JOE. Joe continues to disappoint as much as Apple pleases.  Down 36% for the year.  I think that something better to do with this money is Whole Foods but there are just so many questions around that company right now.

KNOL.  Knology is a cable overbuilder offering triple play services.  The stock has retreated  from the $19 where I locked in some gains to buy Apple and is currently sitting at $14. Still a 400% return in less then 3 years.  I have faith this will head north again based on revenue growth and cost control.

NFLX.  Big mistake.  Bought at $22 at the end of May and the stock is getting hammered based on competitive pressures.  I purchased the stock because I think someone is going to take them out.  Still do, but it's painful at the moment.

SCUR. The story remains unchanged.  Came into this via my time at CipherTrust. Missed out on the big sell off when restrictions were lifted.  The stock is moving sideways and I would like to see a little recovery before starting a  measured unwind.

Its been a rough three months but overall my 12 month return dropped only a point to 36%.

Stock Update

With earnings season well past us I am long overdue with my update on stocks that I control.  As I said beore, for the most part I leave the handling of my stock portfolio to professionals. But I like to keep a little chunk in play money so that I can invest as I see fit.

The number of stocks in the mix has increased from four to six.  Here is the run down.

AAPL.  Sold a bit of my Knology holdings at the end of April and bought Apple at $100.  Basic reason for doing so is that I like their CPU traction.  Beyond the numbers I hear folks in enterprises switching to Macs and neighbors asking me what I think of mine because they like the TV ad.  The stock is up 22% in 60 days.

ELNK. I own a little less EarthLink stock these days.  I sold some to buy Netflix. EarthLink reported a loss of $.24 while analysts were expecting a loss of $.30 and got a nice little pop. I have to keep it real and say I don't see a business in consumer muni Wi-Fi. 

JOE. Joe is a good name for a dog and that is what I call Florida's largest real estate development company. Stock is down $10 (16%) since February. Holding until I figure out something better to do with the money.

KNOL.  Knology is a cable overbuilder offering triple play services.  Rodger Johnson has this one firing on all cylinders.  And the stock is delivering as well.  Up to the $19 range from $13 in February.  I locked in some gains and purchased Apple with the proceeds.

NFLX.  Recently purchased the stock for two reasons.  They are well connected and I think someone is going to take them out.  End of story.  For now.

SCUR. Came into this via my time at CipherTrust. Missed out on the big sell off when restrictions were lifted.  Would like to see a little recovery before starting a  measured unwind with most of the results going to the money professionals.  The $15 I predicted in February seems far, far away.

Overall my 12 month return is 37%.  I'll take that.