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Groupon Files IPO
PaulPA




msg:4321289
 8:56 pm on Jun 2, 2011 (gmt 0)

story [money.cnn.com]

This year's sales are on track to be even stronger: Groupon revealed in its filing to the SEC that it netted $645 million in sales in the first quarter of 2011 alone.

But Groupon is not yet profitable. It lost $413 million in 2010 and lost almost $114 million in the first quarter of 2011.

 

weeks




msg:4321292
 9:03 pm on Jun 2, 2011 (gmt 0)

Anyone who works Twitter or emails, I highly recommend this very long but very compelling article in the NYT last Sunday about Groupon's operations.
[nytimes.com...]

The end of the article is priceless, however:
Doubtless Groupon will present its I.P.O. in sprightly Groupon style, probably something like this: “Sometimes it’s not enough simply to appreciate e-mails from clever people. Sometimes you want to own them too.” The offering could value the company at $25 billion, which would top Google’s 2004 debut as the richest ever for an Internet company.

Perhaps that sum will seem in hindsight to be a great deal, as was true with Google itself. Or maybe it will be Groupon’s best joke ever.

The headline "Groupon files to raise $750 million in IPO" is interesting in context to what we have been hearing.

limoshawn




msg:4321317
 10:08 pm on Jun 2, 2011 (gmt 0)

maybe this is why I'm not a billionaire yet but I just do not understand how a company that lost 413 million last year and is on track to lose more money this year can be valued at $25 billion.

LifeinAsia




msg:4321326
 10:29 pm on Jun 2, 2011 (gmt 0)

maybe this is why I'm not a billionaire yet but I just do not understand how a company that lost 413 million last year and is on track to lose more money this year can be valued at $25 billion.

As they used to say in the 1990s, "They make up for it in volume."

Amazon bled millions for years. Look at it now.

That said, I'm not sure that I would want to invest in Groupon. Given the rapid increase in competitors (especially Google), I'm not sure it's decrease in losses will continue at the same rate (in other words, not sure it's going to be rise to profitability the way Amazon did).

Leosghost




msg:4321332
 10:39 pm on Jun 2, 2011 (gmt 0)

Brokers will get paid whether it tanks or soars ..and the vast majority of investors won't be individuals using their own money..but investment houses and insurance companies and pension funds ..using yours and yours..

Interesting that the NYT piece is considered to be a long article ( I've seen longer posts here.."word count" ) and they had far funnier copy ..creative writing teachers are not what they used to be ..

Must be why Groupon sticks to just offering money off pizza and burgers in Europe.."money off ( insert whatever ) near you"..in various languages..and still they get very very few takers here..

Presumably the reduced IPO price is because they are running coupons..

limoshawn




msg:4321392
 12:48 am on Jun 3, 2011 (gmt 0)

decrease in losses


I would get it if they lost 100 million in year 1 and then lost 80 million in year 2 and then lost 30 million in year 3 but they are on track to lose MORE money this year than last year (-413 million in 2010, on track for -456 million in 2011). I'm sure there's more to it but on the surface it seems like lunacy.

for the record, I'm not picking on groupon, I wish them all the best.

astupidname




msg:4321441
 7:18 am on Jun 3, 2011 (gmt 0)

it seems like lunacy


it seems like lunacy


Yeah, all us fools trying to make money with our sites, turns out that in order to be truly worth anything you should be losing BIG. Gather some major investors, promise them that if they each put in 100 million per year you will do everything you can to make sure and lose it all, but after a few short years it will instead be a 25 billion dollar loser that you were all a part of building. Congratulations!

Presumably the reduced IPO price is because they are running coupons..

HA!

weeks




msg:4321536
 1:01 pm on Jun 3, 2011 (gmt 0)

Yeah, all us fools trying to make money with our sites, turns out that in order to be truly worth anything you should be losing BIG.
It's not as easy as it looks. I speak from a touch of experience.

Anyway, some analysis is in and we are being told...
The social buying site on Thursday filed to go public, a hotly anticipated debut that could raise $3 billion, according to two people close to the company who were not authorized to speak publicly. At that level, the company would be worth roughly $30 billion, surpassing the value of Google at its initial public offering.
[dealbook.nytimes.com...]

I have two retail clients who have tried Groupon and not been impressed with the results. And we have several local firms who are offering similar deals to retailers. Read the NYT feature in my first post on this thread and it's obvious (to me, at least) that that Groupon's idea is not scaleable.

I think Groupon has got a workable idea here. But, $30 billion? But, hey, they're not putting a gun to anyone's head.

I have a meeting next week with a regional direct mail service provider who wants to get into the Groupon biz and needs a website, FB, Twitter, email system, etc. They have a good relationship with about three dozen retailers in each of their five markets. I don't know why they shouldn't try it.

woop01




msg:4321564
 2:56 pm on Jun 3, 2011 (gmt 0)

How in the world are they not making money?

When you look at their revenue splits, they should be printing cash.

LifeinAsia




msg:4321588
 3:52 pm on Jun 3, 2011 (gmt 0)

How come we're not seeing this deal?

Today's Groupon Deal
$12.5 billion for $25 billion Worth of Groupon.
$12.5 billion {BUY!}
The deal is on! Only 1 deal left! (Limit 1 per person. Not valid on holidays or weekends.)

Demaestro




msg:4321593
 4:02 pm on Jun 3, 2011 (gmt 0)

LIA that is awesome!

maybe this is why I'm not a billionaire yet but I just do not understand how a company that lost 413 million last year and is on track to lose more money this year can be valued at $25 billion.


It is all about cash flow and eyballs, if you can run that much money through your doors and that many eyes on your site... even if you lose money, investors will give value to the cash flow and eyeballs alone.

I know it seems weird but in the business world it makes sense. Someone will always pay for the eyeballs you attract and you can always introduce efficiency measures to to the cash flow positive.

woop01




msg:4321596
 4:15 pm on Jun 3, 2011 (gmt 0)

It doesn't make any more sense in the business world now than it did in 1999.

engine




msg:4321604
 4:34 pm on Jun 3, 2011 (gmt 0)

I can see the potential it may have.
You travel to City A and need some food, so you look up Groupon offers In City A for restaurants. Restaurant wins, you win, deal done.

You go back to Home City and you see entirely different offers.

Local must have to be the big draw in this for the future, and your smartphone is the key to it going real big.

I agree, the figure for the IPO seems over the top.

Personally, I find the daily promotional deal e-mails are of no interest to me: Most appear to be for beauty treatments.

walkman




msg:4321684
 7:09 pm on Jun 3, 2011 (gmt 0)

duuuuupe by a dope

[edited by: walkman at 7:14 pm (utc) on Jun 3, 2011]

walkman




msg:4321685
 7:11 pm on Jun 3, 2011 (gmt 0)

So they lost all that money to increase 'revenue' and fool some suckers into buying their stock.

If the entire company was worth $750 million, then maybe.

woop01




msg:4321689
 7:29 pm on Jun 3, 2011 (gmt 0)

The more I look at it, the less it looks like a company and the more it looks like a ponzi scheme.

In the just over 1 billion the raised last December, they only put $150 million into the company. They used over $900 million of it to cash out early investors.

They owe their merchants $290 million but they're $230 million in the hole.

moTi




msg:4321793
 11:35 pm on Jun 3, 2011 (gmt 0)

first of all, once again another "north america only" business. don't give me that "what comes from america rules the world sooner or later" thing. if you want to have global success, act globally. so far, there's no demand for the service outside their home country partly as a consequence of ridiculously bad business execution. groupon didn't get the foot in the door, despite buying up the local first movers. you only get one chance to make a first impression. probably it's already over and done in many foreign markets.

secondly: peak users (groupon daily uniques) [trends.google.com]. it's not scalable. there are only so and so many users with preference to eagerly receive and actually read groupon email newsletters with repeat discount offers (would you really do that?). there is a penetration limit in terms of eyeballs and attention and they seem to be already over it. the same applies to constantly acquiring business customers who reportedly more often than not get their fingers burned.

so now it's about time to tell their story and cash in from the dumb investors. the worst thing, it's just like aol or yahoo, who got their money in 99. these companies will not die. they have no real business case, will never have, at least nothing what would make them worth their valuation. but they are here to stay burning the stupid investor billions who keep them alive for the next 20 years..

[edited by: moTi at 11:49 pm (utc) on Jun 3, 2011]

ken_b




msg:4321795
 11:45 pm on Jun 3, 2011 (gmt 0)

I'm guessing it's more of a "now or never" deal, get the cash before Google muscles them out of the market.

IanKelley




msg:4322098
 11:12 pm on Jun 4, 2011 (gmt 0)

^ Exactly. May not be Google as they have plenty of other competitors and more to come... But one way or another they're going to give up market share. There just isn't anything about their business model, code or infrastructure that is difficult to duplicate... and their high commission % invites competition.

walkman




msg:4322121
 2:38 am on Jun 5, 2011 (gmt 0)

Here's all the math needed for Groupon:

Service costs $100
50% OFF to entice users makes it $50
Of that $50 left, Groupon takes at least $25 (some say they also take CC fee)
So we have a business giving a $100 service for $25 to attract 'customers.'
Do you want those type of customers?
Will they pay $100 or $75 next time to be worth for you?
If you can make money by giving a $100 service for $25 then something stinks with your pricing.

Bottom line: this is an Ok business to make some money and run or for local newspapers to augment advertising revenue but not to be worth $20 Billion.

weeks




msg:4322249
 4:58 pm on Jun 5, 2011 (gmt 0)

If you can make money by giving a $100 service for $25 then something stinks with your pricing.
Not really. The price on many products and services are determined by the value to the customer, not what the provider has put into it. Take books, for example. You print 10,000 books at at cost of $2 per. You sell 5,000 at $20. It's worth $20 to 5,000 people. You make $70,000 and you still have 5,000 books. What is the price you're willing to put on those books?

There are a LOT of firms with fixed costs. Groupon works that fact of life. I think they are providing a worthwhile, needed marketing service. It's a good biz. But, they have to earn it every day.

rogerd




msg:4322335
 12:22 am on Jun 6, 2011 (gmt 0)

I agree, weeks, the service makes a lot of sense. I've operated a local retail business (as an offshoot of my old mail order biz), and traditional local advertising choices are brutally expensive and come with no guarantees. You can spend thousands of dollars on a big newspaper ad, radio campaign, or billboards, and get little back in revenue.

If I owned a restaurant and could guarantee, say, 300 new customers trying out my business, I'd take the "loss" on a Groupon. (If I spent $5K in local ads, I'd have to dig out of that hole with hundreds of full price customers.) The better thought out daily deals for restaurants exclude alcohol, so there's an upsell opportunity. Also, some are low enough in value that most customers will spend some extra for a full meal. Thoughtful planning and not going crazy on the number sold are needed.

The big problem I have with Groupon is that they have no real barrier to competition. Clever copy is their secret sauce? Give me a break. I do read their copy sometimes, but in reality I mainly look at the deal - is it something I will use? Is the deal attractive?

I'm on about six of these lists already, and I don't really pay attention to which service it's from until I click the order button.

walkman




msg:4322352
 1:48 am on Jun 6, 2011 (gmt 0)

@ weeks
You picked an extreme. Software is another thing, Symantec for example can probably sell it's antivirus even for $3 if a billion people buy it but most of the Groupon deals are labor intensive. Someone has to be there and provide the service, massage, do nails, cook or whatever.

Rogerd, ask a restaurant owner how much they like those types of deals and customers :). Restaurants a step away from bankruptcy used to get some advance cash in addition for groupon like deals with a certain credit card. I think it was Discover but it was an act of desperation on the restaurant owner's part. Their margins are quite thin and up-selling just doesn't work on certain segment of population. Restaurant margins are, what 10% at best, with full prices so it's a huge hole to climb out with Groupon deals.

Like I said before, the problem is not that they will not find business, but no where near enough to justify a $15 billion or worse, a $25 Billion valuation. Unless the groupon service has repeat customers, it's over.

votrechien




msg:4322369
 3:25 am on Jun 6, 2011 (gmt 0)


first of all, once again another "north america only" business. don't give me that "what comes from america rules the world sooner or later" thing. if you want to have global success, act globally. so far, there's no demand for the service outside their home country partly as a consequence of ridiculously bad business execution. groupon didn't get the foot in the door, despite buying up the local first movers. you only get one chance to make a first impression. probably it's already over and done in many foreign markets.


I agree with most of your post but the Groupon model has been thriving in other areas of the world including Europe and even China.

With that being said I think the business model is completely unsustainable. Right now there's a lot of glamour for businesses wanting to try Groupon. It's a new marketing medium and relatively risk free. A lot of businesses will try Groupon just to be able to say they tried Groupon. That luster will fade over time and it will make the sales job all that much harder. Not to mention, each geographic area only has so much supply.

IanKelley




msg:4322379
 4:55 am on Jun 6, 2011 (gmt 0)

It's not that groupon isn't a fantastic idea... It's that it's far too easy for a competitor to streamline things and offer businesses a much larger cut.

I think it's safe to say that this is inevitable. Perhaps Groupon will lower their commission in response, but either way their market share is going to drop.

rogerd




msg:4322448
 11:45 am on Jun 6, 2011 (gmt 0)

IanKelley, I think margin erosion is already starting. I spoke to a local photographer who said at least one similar daily deal outfit was offering to take only a 40% cut. As the daily deal offerings proliferate, it seems very likely that offering a better deal to businesses will be a key competitive strategy.

And, even if a competitor has a smaller membership than Groupon or Living Social, most local businesses don't need to maximize the number of deals they do. They just need to hit some reasonable target that will give them exposure but not overload their operation or bankrupt them.

rogerd




msg:4322874
 12:58 pm on Jun 7, 2011 (gmt 0)

To underscore how service biz oriented the daily deal sector is, I looked at my morning deal selesction so far:
-airbrush tanning
-mani/pedi
-bootcamp workout
-golf lessons
-a $5 for $10 restaurant deal

Four of these are low variable cost services that, if excess capacity is available, can be offered cheaply. As long as the business operators don't schedule so many deals that they have to turn down full price business, they will boost profits and meet new prospects they can try to convert into long-term customers.

The $10 restaurant coupon is the exception, but the value is low enough to avoid major damage to the restaurant's bottom line and is probably a cheap way to acquire new customers.

There's likely a little benefit from the mailing, too. Each one is a potential branding impression, and the more appropriate the target the more likely they will study the offer and perhaps even click through to the website.

weeks




msg:4322926
 2:16 pm on Jun 7, 2011 (gmt 0)

walkman said
weeks,.. You picked an extreme. Software is another thing, Symantec for example can probably sell it's antivirus even for $3 if a billion people buy it but most of the Groupon deals are labor intensive. Someone has to be there and provide the service, massage, do nails, cook or whatever.

rogard pointed out
To underscore how service biz oriented the daily deal sector is, I looked at my morning deal selesction so far:
-airbrush tanning
-mani/pedi
-bootcamp workout
-golf lessons
-a $5 for $10 restaurant deal

Four of these are low variable cost services that, if excess capacity is available, can be offered cheaply. As long as the business operators don't schedule so many deals that they have to turn down full price business, they will boost profits and meet new prospects they can try to convert into long-term customers.

The $10 restaurant coupon is the exception, but the value is low enough to avoid major damage to the restaurant's bottom line and is probably a cheap way to acquire new customers.

There's likely a little benefit from the mailing, too. Each one is a potential branding impression, and the more appropriate the target the more likely they will study the offer and perhaps even click through to the website.

Take nail polishing, for example. If you are just sitting there from 2 to 4 pm with few customers, you still have to pay your overhead. Sooooo, ...

Plus, if Groupon (or the others) can provide some analysis of what is working to the retailers and perhaps a worthwhile db,...

The value of having someone in your shop is difficult to overstate. The ad gets them in, then it is up to retailer to get them to come back.

But, yeah walkman, discounting needs to be done very thoughtfully. Too many people equate value with price, for example.

woop01




msg:4322927
 2:17 pm on Jun 7, 2011 (gmt 0)

I'm not sure anybody has questioned the fact that Groupon works for some businesses.

The problem is how many of those businesses are there, is there any repeat value to them, and if Groupon is hemoraging cash the way it has in the past year, how will they ever turn profitable?

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