Groupon S-1 Analysis
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Groupon S-1 Analysis

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A short 17 page report analysing some of the operational metrics detailed in the Groupon S-1 filing.

A short 17 page report analysing some of the operational metrics detailed in the Groupon S-1 filing.

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  • Full Name Full Name Comment goes here.
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  • Hi Martin,

    Can you explain how did you calculate the 'Sales Cost and Customer Acquisition vs Revenue per Featured Merchant' and the source of those input data ?

    I can not figure out from sec's s1 filing.
    http://www.sec.gov/Archives/edgar/data/1490281/000104746911005613/a2203913zs-1.htm

    I am trying to find out what I am missing.

    Thanks,

    George
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  • Great document Martin, thanks for sharing.
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Groupon S-1 Analysis Groupon S-1 Analysis Document Transcript

  • Analysis of the key operating metrics published in the Groupon S-1 Filing Report Author: Martin New Prepared: 19/07/2011 CONTACT Prepared by Martin New Page 1
  • Summary of Key Numbers:  Subscribers: 83.1 million - up from 3.4 million in March 2010 (2,320%)  Customers: 15.8 million – up from 874,000 in March 2010 (1,708%)  Subscriber acquisition cost: 30$  Customer conversion rate: 19%  Featured Merchants: total 125,765 : 56,781 in Q1 2011 – up from 2,903 in Q1 2010 (1856%)  Merchant pool (IE deals in pipeline): Currently 40,000 (up from 15 in March 2009)  Groupons sold: 60 million total. 28.1 million in Q1 2011 – up from 1.8 million in Q1 2010 (1,496%)  Revenue: $713 million in Yr end Dec 2010 – up from $30.5 million in 2010 (2,241%)  Average Revenue per merchant: $11,000  Average Groupon price: $23  Average revenue per Subscriber: $14.10 in 2010 vs $7.76 in Q1 2011  Groupon:Merchant Revenue split: currently at 60:40 in Merchants favor  Gross Profit: $280 million in Yr end Dec 2011 – up from $11 million in 2010 (2,462%)  Net Income/Loss from operations: Loss of $114 million in Q1 2011 vs income of $8.7 million in Q1 2010  Marketing Spend: Grew by +5,000% in Q1 2011 vs Q1 2010 ($208 million)  Selling, Gen and Admin: Grew by 2,300% in Q1 2011 vs Q1 2010 ($179 million)  Total operating expenses: accounted for 118% of revenue in Q1 2011 vs 80% in Q1 2010 ($762 million in Q1 2011 – up 2,000%)  Employees: 7,107 (76% International)  Revenue per sales employee: North America - $450,000 vs International - $120,000  Geographical coverage: 43 countries and 175 North American Markets  International vs North America: International operations account for 58% of revenue Prepared by Martin New Page 2
  • CHART INDEX Chart PageGroupon Revenue vs Gross Profit Trend 4Subscribers, Cummulative Customers vs Groupons sold 4Quarterly growth of Groupon Subscribers and Customers 5Percent of Subscribers purchasing Groupons 5Groupons Purchased by Customer and Subscriber 6Acquisition Cost vs Revenue per subscriber 6Average Groupon Deal Price 7Global Sales by Category Q1 2011 (Volume based) 7Sales Cost and Customer Acquisition vs Revenue per Featured Merchant 8Average Revenue per Merchant 8Gross Profit to Cost of Revenue Trend 9Operational Costs as a Percentage of Revenue 9Employee Head Count by function and Segment 10Revenue per Sales Employee Q1 2011 (North America vs International) 10Merchants per Sales Employee Q1 2011 (North America vs International) 11North America vs International Revenue 11Marketing Spend Share North America vs International 114 City Comparison: Subscriber trend 124 City Comparison: Cumulative Customer trend 124 City Comparison: Customer share of Subscribers 134 City Comparison: Groupons purchased per subscriber 134 City Comparison: Average Price per Groupon 144 City Comparison: Groupons Sold per Merchant 144 City Comparison: Average Revenue per Featured Merchant 15 Prepared by Martin New Page 3
  • Revenue and Gross ProfitGroupon has experience tremendous revenue growth within the 30 months of trading. Inthe first quarter of 2011, the company generated nearly $655 million in sales (up from $44million a year earlier. Gross profit in the last quarter stood at $270 million. Groupon classifyGross Profit as Revenue (receipts from Groupon sales) less Cost of Revenue (payment madeto merchants). 644,728 Groupon Revenue vs Gross Profit Trend 700,000 ($000s) 600,000 396,600 500,000 270,000 400,000 185,231 300,000 153,309 87,298 200,000 72,287 44,236 34,373 19,985 16,920 9,998 5,641 3,996 3,301 100,000 1,209 252 83 0 March June Sept Dec March June Sept Dec March Revenue Gross ProfitSubscriber and Customer Base Groupon Key Metrics Subscribers, Cumulative Customers vs Groupons sold Acquired 1.9 million subscribers May 2010 with CityDeal acquisition March June Sept Dec March June Sept Dec March Subscribers 152,203 627,051 1,807,278 3,434,610 10,445,521 21,369,608 50,583,805 83,100,006 Cummulative Customers 6,840 43,014 153,471 375,099 874,017 2,379,611 4,623,267 9,031,807 15,803,995 Groupons Sold 27,221 116,231 340,471 764,869 1,760,398 4,062,458 8,237,733 16,235,481 28,094,743 Prepared by Martin New Page 4
  • As at March 2011, Groupon had acquired 83.1 million subscribers, of which 15.8 million hadpurchased 1 or more Groupons (19% conversion). Since launch, 60 million Groupons havebeen sold. Quarterly growth of Groupon Subscribers and Customers 32,516 29,214 35,000 Thousands 30,000 25,000 20,000 10,924 15,000 7,011 6,772 10,000 4,409 2,244 1,627 1,506 1,180 5,000 499 475 222 152 110 36 7 0 March June Sept Dec March June Sept Dec March Additional Subscribers Additional customersWhen broken down by quarter, Groupon saw subscribers increase by an impressive 18.3million in Q4 2010 (167% growth), vs a growth in additional unique subscribers of 2.2million (96% growth). The chart below shows the gradual decline in the rate of conversionof total subscribers. Percent of Subscribers purchasing Groupons 28.3% 29.0% 27.0% 25.4% 24.5% 25.0% 22.8% 23.0% 21.6% 20.8% 21.0% 19.0% 19.0% 17.9% 17.0% 15.0% June Sept Dec March June Sept Dec MarchNote: The conversion rate is likely to be less than shown since Groupon do not include “guest” purchases in theirsubscriber numbers. Prepared by Martin New Page 5
  • Groupon Key Metrics Groupons Purchased by Customer and Subscriber 4.5 4.0 4 3.5 3 2.7 2.5 2.2 2.0 2.0 2 1.7 1.8 1.8 1.8 1.5 1 0.8 0.5 0.4 0.5 0.4 0.4 0.3 0.3 0.5 0 March June Sept Dec March June Sept Dec March Groupons per subscriber ratio Groupons per Customer ratioThe average number of Groupons purchased per subscriber has held steady at around 2over the last 18 months.Average acquisition cost per new customer is 30$ (and rising) vs revenue of 14$ persubscriber (and falling). This is particularly high for non-recurring customers. Netflix SAC(Subscriber Acquisition Cost) for example is now at 14$. Acquisition Cost vs Revenue per subscriber $35.00 $30.40 $30.74 $30.00 $25.00 $20.00 $16.86 $14.10 $12.88 $15.00 $12.12 $10.00 $7.99 $7.76 $5.00 $0.00 2009 2010 2010 2011 Yr end Dec 3mth End March Acquisition cost per new Customer Revenue per Subscriber Prepared by Martin New Page 6
  • GrouponsTo-date Groupon has sold around 60 million Groupons for a total revenue of almost $1.4Billion. The average price of a Groupon has held steady at around 23$ for the past 18 mths. Average Groupon Deal Price $35 $29 $28 $30 $25 $24 $25 $22 $22 $23 $21 $20 $15 $9 $10 $5 $0 March June Sept Dec March June Sept Dec MarchSomething that was not covered in the S-1 filing was the share by deal type that Grouponhas been offering. As competition heats up and deal sites start to target specific nicheverticals, it is important to understand where Groupon is facing the toughest competition.The only information provided by Groupon is that they have offered over 140 different typesof businesses, activities and services that they classify into 6 broad categories. Anunderstanding of the trend, geographical share by each category may be gleaned from 3rdparty aggregators like Yipit that are tracking the market at this level, with the addedadvantage of being able to compare the profile by daily deal provider. Global Sales by Category Q1 2011 (Volume based) Services, 11% Health and Beauty, 31% Activities, 15% Events, 11% Food and Drink, 23% Prepared by Martin New Page 7
  • MERCHANTSTurning our attention to the merchant metrics, the chart below shows that the cost ofacquiring merchants has increased by almost 70% between yr end Dec 2009 and 2010, andon average is now costing Groupon around $7,500 in sales and marketing activities permerchant. Sales Cost and Customer Acquisition vs Revenue per Featured Merchant $12,000 $11,306 $10,761 $10,000 $8,000 $7,499 $6,000 $4,455 3,971 $4,000 $3,529 $2,767 1,688 $2,000 $0 2009 2010 Sales Cost Marketing Total Sales/Marketing RevenueThe average revenue per featured merchant has fluctuated over time. Of key importance isthat Groupon attract varied and high quality merchants. Another factor affecting averagemerchant/deal revenue is the fact Groupon now offer multiple daily deals each day for eachcity. While this provides for greater consumer options/targeting, it may dilute and weakensales for each featured merchant. Groupon has recently launched Groupon Getaways thatwill likely have a higher average price point and may help push the average Groupon ticketprice higher. Average Revenue per Merchant $15,571 $15,238 $18,000 $13,069 $16,000 $11,355 $11,299 $10,292 $14,000 $9,894 $9,127 $12,000 $10,000 $8,000 $3,405 $6,000 $4,000 $2,000 $0 March June Sept Dec March June Sept Dec March Prepared by Martin New Page 8
  • It has often been reported that Groupon’s terms with merchants is a 50:50 revenue split. Infact, the S-1 filing shows that the Cost of Revenue (amount paid to merchants) sinceJanuary 2009 has averaged out at 60:40 in favour of the merchant. When analysed byquarter however, it appears Groupon is managing to negotiate better revenue share overtime, having moved from 67:33 to 58:42 in the last quarter. This trend may prove to bedifficult to maintain given increased competition. Gross Profit to Cost of Revenue Trend 100% 80% 60% 55% 61% 58% 60% 63% 67% 61% 61% 67% 60% 40% 20% 40% 45% 39% 42% 40% 37% 33% 39% 39% 33% 0% March June Sept Dec March June Sept Dec March Average Gross Profit Cost of RevenueOperational CostsGroupon increased marketing spend during 2010, spending $263 million versus just $4.5million in 2009. Total operational costs in Q1 2011 out stripped revenue by 18% - whichwas an improvement on the yr ending December 2010 when costs were running at 30%above revenue. Selling, general and administration costs have also grown as a percentageof revenue, while payment to merchants actually improved yr on yr and is currently at 58%of revenue. Operational Costs as a Percentage of Revenue 130.5% 118.2% 103.5% 32.8% 27.8% 24.5% 80.6% 36.9% 32.3% 14.9% 16.8% 9.0% 64.1% 60.8% 54.8% 58.1% Yr 2009 Yr 2010 Q1 2010 Q1 2011 31,548 930,526 35,665 761,876 Cost of revenue Marketing Selling, General and Administrative Prepared by Martin New Page 9
  • Groupon has hired aggressively since launch and now has over 7,000 staff around theworld. Over 75% are based outside North America. Being a sales/marketing company it isno surprise that 50% of employees work in sales and are a critical factor in the business. AsGroupon expands into new markets, the sales force will increase in proportion. Employee Head Count by function and Segment 38% 36% 47% 12% 11% 15% Corporate & Operational 50% 54% Customer Service 38% Sales Total North America International 7107 1724 (24%) 5383 (76%)In Q1 2011, the sales team in North America were far more profitable than theirInternational counterparts, generating nearly 4x the revenue and being responsible fornearly 3x as many merchants. Revenue per Sales Employee Merchants per Sales Employee Q1 2011 Q1 2011 $450,676 31 16 $181,307 12 $119,803 Total North America International Total North America InternationalNORTH AMERICA VS INTERNATIONALGroupon is currently operating in 43 countries. International operations commenced in May2010 with the acquisition of CityDeal who offer deals in 80 cities across 16 Europeancountries. In the quarter ending March 2011, International operations accounted for 58% ofrevenue (up from 37% in the year ending December 2010). Prepared by Martin New Page 10
  • North America vs International Revenue ($000s) 448,317 346,831 297,897 265,048 Yr end Dec 2010 3 mths end March 2011 International North AmericaGroupon has invested heavily on marketing with the International segment accounting for62% of spend, representing 37% of revenue generated from International operations(compared to 26% revenue in North America). Marketing Spend Share North America vs International 3 mths end March 2011 26.4% % of revenue 37.3% North America International 37.8% % share 62.2%An assumption made by Groupon is that as the market matures, marketing spend willdecrease. Unfortunately the Groupon S-1 does not provide a breakdown of marketing spendby quarter and segment to see if Groupon have started to pull back on North Americanmarketing spend. If not, and they continue to push into new markets, marketing expensewill continue to grow. Leveraging social media is considered an important aspect of the dailydeal space (hence often referred to as social group buying). If Groupon cut back onmarketing spend, they will need to ensure that subscribers/customers continue to sharedeals using the social media tools available. Prepared by Martin New Page 11
  • Case Studies: Chicago, Boston, Berlin and LondonAlthough only limited data is available in the S-1 filing for each of the 4 cities, it isinteresting to make a comparative performance study of the key metrics provided.Each city is showing consistent subscriber growth over time. London has grown quickly insubscriber acquisitions but is falling short on converting subscribers into paying customers.Although Berlin has the lowest subscription base of the 4 reviewed, it has still gained moresubs than either Chicago or Boston did after 1 year of activity. 4 City Comparison Subscriber trend June Sept Dec March June Sept Dec March Boston 17,069 56,904 122,375 194,615 285,615 412,467 561,064 778,936 Chicago 36,891 62,038 147,882 268,056 492,826 750,118 1,102,146 1,504,978 Berlin 92,500 152,800 261,200 396,000 London 159,156 423,660 993,662 1,602,968Despite impressive acquisitions of subscribers, it is important to see how many becomepaying customers. Despite London achieving 1.6 million subscribers, to date only 145,000have purchased a Groupon (a conversion of just 9% - compared to 37%, 35% and 18% forChicago, Boston and Berlin respectively). 4 City Comparison Cumulative Customer trend June Sept Dec March June Sept Dec March Boston 8,545 20,953 36,634 62,610 94,617 142,930 197,961 272,548 Chicago 19,003 43,023 74,237 125,403 184,074 285,987 409,746 552,712 Berlin 9,072 23,007 40,992 69,412 London 10,284 34,182 75,897 144,933 Prepared by Martin New Page 12
  • 4 City Comparison Customer share of Subscribers June Sept Dec March June Sept Dec March Boston 50% 37% 30% 32% 33% 35% 35% 35% Chicago 52% 69% 50% 47% 37% 38% 37% 37% Berlin 10% 15% 16% 18% London 6% 8% 8% 9%While growing subscriptions is important, Groupon need to address the falling ratio ofGroupons purchased per subscriber. Both Chicago and Boston has seen a dramatic fall from1.5 Groupons per subscriber to around 2 subscribers per Groupon sold. London has not yetmanaged to grow purchase rates above 1 Groupon per 3 subscribers. 4 City Comparison Groupons purchased per subscriber June Sept Dec March June Sept Dec March Boston 1.5 0.7 0.5 0.5 0.5 0.5 0.5 0.5 Chicago 1.3 1.4 1.0 1.0 0.7 0.7 0.6 0.6 Berlin 0.5 0.6 0.5 0.6 London 0.3 0.3 0.2 0.3Both Boston and Chicago has seen the average price per Groupon fall over time and evenBerlin saw a drop in the last quarter. London however continues to see average Grouponticket price climb and has been consistently higher than the other cities analyzed. This islikely due to the higher cost of living in London, but may also be a result of the category ofdeals being offered (eg greater share of high price activities than lower ticket items like fastfood, manicure deals). Prepared by Martin New Page 13
  • 4 City Comparison Average Price per Groupon June Sept Dec March June Sept Dec March Boston $26.89 $35.00 $31.88 $30.29 $30.13 $26.40 $24.99 $23.96 Chicago $34.11 $35.56 $26.11 $23.93 $26.50 $24.21 $24.89 $22.62 Berlin $21.25 $26.87 $36.12 $26.61 London $34.30 $42.55 $45.42 $49.99Although the quantity sold and revenue generated for each featured merchant is dependenton numerous factors, both North American cities have seen average Groupon sales permerchant fall. Berlin and London are still witnessing growth however. 4 City Comparison Groupons Sold per Merchant June Sept Dec March June Sept Dec March Boston 394 533 649 871 1,316 1,541 994 851 Chicago 700 917 1,140 1,829 2,235 2,322 1,445 1,253 Berlin 436 333 411 551 London 486 547 809 931Both Chicago and Boston saw average revenue per merchant rise in the first 15 months ofactivity, but each has since seen average deal revenue fall back to December 2010 levels. Prepared by Martin New Page 14
  • London is currently outpacing the other 3 (generating $46,500), but still lags behindChicago at its peak mid-2010 with an average deal value of $60,000. 4 City Comparison Average Revenue per Featured Merchant June Sept Dec March June Sept Dec March Boston $10,606 $18,667 $20,690 $26,364 $39,655 $40,690 $24,825 $20,395 Chicago $23,881 $32,609 $29,771 $43,750 $59,236 $56,223 $35,957 $28,327 Berlin $9,259 $8,955 $14,851 $14,663 London $16,667 $23,276 $36,735 $46,528 Prepared by Martin New Page 15
  • Prepared by Martin New Page 16
  • Some outstanding questions  Email Subscription churn/open rates? With a low conversion rate, it would be beneficial to know how many people are actually opening the emails Groupon send out each day. Also of importance is to get a fix on the churn (unsubscribes) that is occurring over time.  What is the trend in fraud/refund rates? Groupon currently hold 4% of revenue to cover fraud and refund. The question is: how does this match up with actual fraud/refund rates and how is it trending over time.  Revenue by deal type? Given the wide value and volume splits that occur between different daily deal categories, plus the growth in niche vertical deal sites, an understanding of Groupon’s deal mix would give better insight into the company’s business model.  Voucher redemption rates and timeline of redemption? Since Groupon’s international merchant payment policy is to pay merchants upon coupon redemption, any change in either the breakage or time between customers purchasing and redeeming Groupons will affect cash flow. Additionally, should legislation extend legal redemption terms on coupons.  Repeat customer trends Is Groupon generally appealing to discount hunters. If so, merchants may be less interested in running daily deals and Groupon customers will likely be less loyal to a single Daily Deal site.  Proportion and trend toward national deals? Groupon has stated that it uses national deals to help build subscriber base and these deals are likely to be less profitable given the lower margin charged to merchants.  What is the share of mentions on Facebook, Twitter etc per subscriber? Part of the daily deal concept is having consumers share deals with friends, family and work colleagues – hence the term social group buying. Question is, are people still sharing deals at the same rate? CONTACT Prepared by Martin New Page 17