June 02, 2011

Groupon SEC Filing Tidbits

By now, you've had an opportunity to thumb through the Groupon SEC Filing (click here to read it).

I want for you to digest this for a moment:
  • 2010 Annual Revenue = $713,365,000.
  • 2010 Annual Loss = $413,386,000.
  • 2011 Q1 Revenue = $644,728,000.
  • 2011 Q1 Loss = $113,891,000.
  • Customers like Groupon.  Groupon loses money.  Retailers, on average, lose money.  Oh boy.
Now, I'm no Carnac the Magnificent.  But this seems to be headed in one of three directions.
  1. Groupon blows up like Amazon.com, becoming a social commerce institution, redefining online and physical retail in the process.
  2. Groupon blows up like Pets.com, and is talked about for a decade or more as a symbol of the social commerce bubble.
  3. Groupon is blitzed by rampant competition, becoming something that didn't scale, but didn't fail, either (this is my guess).

Other Notes:
  • 83,000,000 subscribers to-date, only 28,100,000 Groupons sold ... and only 15,800,000 customers (meaning about 2 sold per customer, weighted down by Spring 2011 blitz).
  • Maybe $25 revenue per Groupon sold.  Keep doing the math ... about $50 per customer, to-date.  That's not a lot of cheese, folks.
  • Company spent $241,000,000 in marketing in 2010.
  • Company spent $179,000,000 in marketing in Q1-2011.  Just think about that one for a moment.  That's called "buying scale".
  • If Groupon sends an e-mail every day to a subscriber, and there were a weighted average of 65,000,000 subscribers in Q1-2011, and 28,094,000 Groupons were sold, then the conversion rate of an e-mail campaign is (28,094,000) / (65,000,000 * 90) = 0.48% ... or one in 208 subscribers buy a Groupon.  In other words, that's a rate that is fairly consistent with many e-commerce brands, except that the AOV is, by definition, much lower.
  • Gross Profit in Q1-2011 is about 41%.  It was about 39% last year.  That's less than the 50/50 share that is widely publicized.
  • Pay attention to the marketing channels used by Groupon:  Search, Social Networking, Portal Ads, E-Mail Marketing, Affiliates, Television, Radio, and Print.  It's amazing how the social commerce mudheads cheerlead their channel, and yet, look at the traditional advertising channels used to drive a prospect to a social commerce brand.  Primary ad channels were Search and Social Networking, by the way.
  • In Q1-2011, the company is spending about $8 in marketing cost to generate each Groupon sold.
  • Marketing is 32% of revenue in Q1-2011 ... that number is a bit beefy, folks, though not terribly unusual (yes, social commerce experts, I get it, they're "ramping up" in an effort to "scale" prior to going public).
  • 46% of revenue from North America.
  • Customers are consistently around 20% of the subscriber base.  Keep that metric in mind, and pay close attention to it, going forward.  Subscribers will tap out in the next few years, in all likelihood, so growth must come from an increase in the conversion rate, or from complimentary products.
  • If it truly costs $6 to $9 of marketing expense to acquire a customer, then it will take just one Groupon sold, plus/minus, to pay for marketing costs, after accounting for gross margin ... that's not unreasonable, folks.

4 comments:

  1. What struck me (and I could be completely wrong on this) that they're spending the marketing dollars on social media to primarily just acquire subscribers--not focusing on increasing the number of those subscribers actually buying Groupons. Which kind of seems like a hollow use of money, to me.

    And with Cost of Revenue (the money they pay to merchants, I believe) floating just north of 50%, do you think they're eventually going to try and use their subscriber base as a means to strong-arm their Cost of Revenue lower?

    With their net losses where they are, though, I wouldn't be comfortable investing in them right now.

    Thanks, Kevin!

    ReplyDelete
  2. Actually, Kevin . . .

    All the strategic hocus-pocus has only one objective: to make the founders a bunch of money on an enormous stock float to the suckers!

    Best

    Don Libey

    ReplyDelete
  3. There you go, Corwyn ... the numbers make it hard for one to think about investing, don't they?

    And yes, Mr. Libey, they will accomplish their goal, won't they?!

    ReplyDelete
  4. Groupon founders cashing out BEFORE IPO:

    http://mashable.com/2011/06/02/groupon-cash-out/

    This would worry me if I was an employee there, and should worry potential investors.

    ReplyDelete