Hmm, an aggregator of business-crippling 50+% off coupons directed squarely at one-time-use, entitled penny-pinchers is not doing well after they've run through most of the gullible small businesses in the US?
Another article[1] on WSJ has as its title "Groupon posts surprise loss" and I thought, how is it a surprise? Personally I was expecting a loss, when I read through their S-1 both before and after the amendments the numbers still didn't add up. If I could find a reasonable source of Groupon stock to borrow for 12 months I'd be tempted to short.
You could just take a spread bet position instead. Doesn't require collateral, doesn't have a cost of funding/carry and, at least in the UK, gains are tax free.
Yes it's a leveraged product but that doesn't mean you need to take any more risk. You can put on the equivalent risk of any physical trade. Tne only difference is you're not putting down the money upfront. And of course you can put on stop-loss limit to close the trade if your losses exceed your threshold.
Some or many were expecting a profit and in fact the main reason for the loss was extraordinary overseas taxes which will not happen in the same manner going forward.
You can hate Groupon but that doesn't change that it is a huge, fast growing, profitable (expected in Q1) business.
Whether this is good or bad is impossible to know without knowing the net value of a customer. If they added a million customers who each had a $100 net value, this was a fantastic quarter.
My sense, though, is that the net value of a Groupon customer is very low and may, in fact, be negative. Customers are expensive to get and don't seem to bring a lot of repeat business without incurring re-acquisition costs.
I would imagine Groupon has an idea what that value is, and if it was high, they'd be trumpeting it to ward of the negatives of the loss.
I just don’t think it is a feasible long term business model. It cost to much to employ tons of sales people to push themselves on small businesses, that don’t realize that taking a loss to drum up new business is not a good idea when all Grouponers want is to move on to the next deal. Therefore, they seldom get repeat deals with vendors (and who would after offering %75 off after discount and commission) and have to constantly look for a new (sucker) small business to work with. Not to mention they employ more writers than the New York Times, to come up with their cute little blurbs. That has to add up quick. They employ over 6000 people and growing quickly.
I think it's difficult to measure because yes, they may be taking an initial loss. But, they may gain new customers as a result of the temporary loss making it a positive.
The issue is how many customers have they conclusively gained as a result?
Newspaper/magazine ads are no different. Unlike online advertisements, it's not easy to measure.
I worked at a company that bought hundreds and thousands of ads per month and we had a difficult time measuring. You can ask the customer where they found you (which takes time and many times the customer doesn't give it to you) or you could have multiple phone numbers, which is not a good solution either.
Groupon is in a dramatic race against financial gravity. The insiders will be desperately struggling to keep the share price up until May when the lock up period ends and they can flee the burning theatre. To do that they need to produce one more quarter of results that can keep the fantasy of a company that will one day justify a $15 billion valuation alive.
The earnings miss (3 cent loss vs 2 cent profit est) shows they are already struggling to control things and might not manage it. The VCs that paid the founders to get a piece of IPO flipping action could well be sweating by now.
Not normally for companies of this size. Most companies want to show they can make profits to maximize their float value. But if you look at the pink sheet stocks many of these are companies looking to fund their RD or growth and have negative earnings. Also many pink sheet stocks are thinly veiled scams.
I still don't understand how a company that apparently takes half the total revenue from all purchases from people who use a groupon could possibly lose money. I'm sure I'm missing out on something, but it seems like they should be drowning in money.
I will join you from the other angle. Hat off to Mr. Mason for a genius idea, but in the wildest dream I wouldnt come up with a business where you ask a store to cut their price 50% and share 50% of the remaining 50% with me just for announcing your deal. when this just came in public light, to me it felt like an insult: I thought no way a store will lose money on each merchandise sold because there are not in charity business and to me it was simply an insult that before that deal they tried to rip me off with jacking up the price 150% (since they would still make money after the discount and 50% to Groupon).
Whether the 50% lines work for people is on a case by case basis, and you're certainly not alone in thinking there are some serious problems with it.
However, if you think of it another way, Groupon is marketing. Sure, using Groupon costs them money, but so does typical marketing, whether it's a clever PR campaign, or a TV advert, or a spot in the local newspaper... The real question is always going to be whether the results Groupon delivers you are worth the cost of the campaign, and how that compares to alternative forms of marketing.
The results are disappointing to analysts, but surprisingly good to me. I read this as "Groupon cuts marketing expense by 25%, manages to triple revenue (YOY) this quarter." They are in MUCH better shape than LivingSocial (lost $558mil on revenues of $245mil in 2011 http://www.washingtonpost.com/business/economy/livingsocial-...)
Groupon had $507 million in revenues this QUARTER, and lost $43 million. My guess is that if they wanted to lower expenses with their current model, they could cut the writing staff pretty significantly. From talking to friends there, at the moment the writers write 5 deals per day... They could easily do some huffpo style shit and cut that staff in half. They also are planning to get in deeper with their merchants... remains to be seen how it goes, but will be interesting.
(edited to add YOY - thanks for the correction vladd)
Quarter revenue was tripled on a year-to-year basis (2011 Q4 versus 2010 Q4).
> if they wanted to lower expenses they could cut the writing staff pretty significantly
Based on the earnings call, staff expenses are actually about to increase as GRPN will start to hire more tech on its payroll (Silicon Valley software engineers).
I wonder whether the inability to measure repeat visitors is just because they haven't figured out how to offer it yet, or whether it's intentional because they know it will reveal damaging information to merchants (that running one doesn't make long-term sense). Unclear what the answer is here...
What is interesting to watch is that there are many market opportunities for these types of businesses where the costs to obtain customer and hand hold in the beginning is very high..
My personal example is a private business/equity exchange platform is just one example(I worked on one in Chicago).
So how does technology empower a start-up to change the costs of customer acquisition and change that customer cost of acquisition equation.
I do not think they solved the customer cost of acquisition yet..
I don't feel sorry for these guys at all. Ever hear the mixergy interview with the guy from Groupon? He talks about pissing money away on things just because they could.
Seems like a timely opportunity to watch "Startup.com" again. I'd highly recommend it to anyone who has not seen it before - it is an up-close documentary of a "dot-com 1.0" hopeful, from the night the CEO-to-be walks out of his job at Goldman-Sachs to... well, just watch it. :)
I always considered Groupon's creator a scam artist, just look at the History of his companies.
He is specialist in telling people what they want to hear, a la Madoff or Obama. He is really great at this.
Fool people take the bait, smart people that identifies the trick seek to also profit from the fools(speculative investment banks are not as fools as they look from outside, they know what they are making, creating bubbles that will explode onto other's people hands), and continue dancing around the music of the magic spell.
When the spell is over, people get bankrupted and the smart people(that sold their stocks long ago to the deluded) look surprised.
Actually, fool people think they can win people over to their argument by bringing frankly moronic party politics into it - in particular when the line insulting Obama could be used for almost any politician.
Go figure.