Groupons1analysis 110719203435-phpapp01

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Groupons1analysis 110719203435-phpapp01

  1. 1.                 Analysis  of  the  key  operating       metrics  published  in  the     Groupon  S-­1  Filing               Report  Author:  Martin  New     Prepared:  19/07/2011                 CONTACT                                   P r e p a r e d   b y   M a r t i n   N e w   Page  1    
  2. 2.   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                                                           P r e p a r e d   b y   M a r t i n   N e w   Page  2    
  3. 3.   CHART  INDEX     Chart   Page   Groupon  Revenue  vs  Gross  Profit  Trend     4     Subscribers,  Cummulative  Customers  vs  Groupons  sold   4     Quarterly  growth  of  Groupon  Subscribers  and  Customers     5     Percent  of  Subscribers  purchasing  Groupons   5     Groupons  Purchased  by  Customer  and  Subscriber   6     Acquisition  Cost  vs  Revenue  per  subscriber   6     Average  Groupon  Deal  Price   7     Global  Sales  by  Category  Q1  2011  (Volume  based)   7     Sales  Cost  and  Customer  Acquisition  vs  Revenue  per  Featured  Merchant   8     Average  Revenue  per  Merchant   8     Gross  Profit  to  Cost  of  Revenue  Trend   9     Operational  Costs  as  a  Percentage  of  Revenue   9     Employee  Head  Count  by  function  and  Segment   10     Revenue  per  Sales  Employee  Q1  2011  (North  America  vs  International)   10     Merchants  per  Sales  Employee  Q1  2011  (North  America  vs  International)   11     North  America  vs  International  Revenue   11     Marketing  Spend  Share  North  America  vs  International   11     4  City  Comparison:  Subscriber  trend   12     4  City  Comparison:  Cumulative  Customer  trend   12     4  City  Comparison:  Customer  share  of  Subscribers   13     4  City  Comparison:  Groupons  purchased  per  subscriber   13     4  City  Comparison:  Average  Price  per  Groupon   14     4  City  Comparison:  Groupons  Sold  per  Merchant   14     4  City  Comparison:  Average  Revenue  per  Featured  Merchant   15               P r e p a r e d   b y   M a r t i n   N e w   Page  3    
  4. 4.   Revenue  and  Gross  Profit     Groupon  has  experience  tremendous  revenue  growth  within  the  30  months  of  trading.  In   the  first  quarter  of  2011,  the  company  generated  nearly  $655  million  in  sales  (up  from  $44   million  a  year  earlier.  Gross  profit  in  the  last  quarter  stood  at  $270  million.  Groupon  classify   Gross  Profit  as  Revenue  (receipts  from  Groupon  sales)  less  Cost  of  Revenue  (payment  made   to  merchants).           644,728   Groupon  Revenue  vs  Gross  Profit  Trend 700,000   ($000s) 600,000   396,600   500,000   270,000   400,000   185,231   153,309   300,000   87,298   200,000   72,287   44,236   34,373   19,985   16,920   9,998   5,641   3,996   3,301   1,209   100,000   252   83   0   March June Sept   Dec March June Sept Dec March Revenue Gross  Profit       Subscriber  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               P r e p a r e d   b y   M a r t i n   N e w   Page  4    
  5. 5.   As  at  March  2011,  Groupon  had  acquired  83.1  million  subscribers,  of  which  15.8  million  had   purchased  1  or  more  Groupons  (19%  conversion).  Since  launch,  60  million  Groupons  have   been  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  customers     When  broken  down  by  quarter,  Groupon  saw  subscribers  increase  by  an  impressive  18.3   million  in  Q4  2010  (167%  growth),  vs  a  growth  in  additional  unique  subscribers  of  2.2   million  (96%  growth).  The  chart  below  shows  the  gradual  decline  in  the  rate  of  conversion   of  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 March   Note:  The  conversion  rate   subscriber  numbers.     P r e p a r e d   b y   M a r t i n   N e w   Page  5    
  6. 6.   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  ratio     The  average  number  of  Groupons  purchased  per  subscriber  has  held  steady  at  around  2   over  the  last  18  months.       Average  acquisition  cost  per  new  customer  is  30$  (and  rising)  vs  revenue  of  14$  per   subscriber  (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               P r e p a r e d   b y   M a r t i n   N e w   Page  6    
  7. 7.   Groupons     To-­date  Groupon  has  sold  around  60  million  Groupons  for  a  total  revenue  of  almost  $1.4   Billion.  The  average  price  of  a  Groupon  has  held  steady  at  around  23$  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 March       Something  that  was  not  covered  in  the  S-­1  filing  was  the  share  by  deal  type  that  Groupon   has  been  offering.  As  competition  heats  up  and  deal  sites  start  to  target  specific  niche   verticals,  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  types   of  businesses,  activities  and  services  that  they  classify  into  6  broad  categories.  An   understanding  of  the  trend,  geographical  share  by  each  category  may  be  gleaned  from  3rd   party  aggregators  like  Yipit  that  are  tracking  the  market  at  this  level,  with  the  added   advantage  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%       P r e p a r e d   b y   M a r t i n   N e w   Page  7    
  8. 8.   MERCHANTS     Turning  our  attention  to  the  merchant  metrics,  the  chart  below  shows  that  the  cost  of   acquiring  merchants  has  increased  by  almost  70%  between  yr  end  Dec  2009  and  2010,  and   on  average  is  now  costing  Groupon  around  $7,500  in  sales  and  marketing  activities  per   merchant.       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 Revenue     The  average  revenue  per  featured  merchant  has  fluctuated  over  time.  Of  key  importance  is   that  Groupon  attract  varied  and  high  quality  merchants.  Another  factor  affecting  average   merchant/deal  revenue  is  the  fact  Groupon  now  offer  multiple  daily  deals  each  day  for  each   city.  While  this  provides  for  greater  consumer  options/targeting,  it  may  dilute  and  weaken   sales  for  each  featured  merchant.  Groupon  has  recently  launched  Groupon  Getaways  that   will  likely  have  a  higher  average  price  point  and  may  help  push  the  average  Groupon  ticket   price  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     P r e p a r e d   b y   M a r t i n   N e w   Page  8    
  9. 9.   fact,  the  S-­1  filing  shows  that  the  Cost  of  Revenue  (amount  paid  to  merchants)  since   January  2009  has  averaged  out  at  60:40  in  favour  of  the  merchant.  When  analysed  by   quarter  however,  it  appears  Groupon  is  managing  to  negotiate  better  revenue  share  over   time,  having  moved  from  67:33  to  58:42  in  the  last  quarter.  This  trend  may  prove  to  be   difficult  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  Revenue     Operational  Costs     Groupon  increased  marketing  spend  during  2010,  spending  $263  million  versus  just  $4.5   million  in  2009.  Total  operational  costs  in  Q1  2011  out  stripped  revenue  by  18%  -­  which   was  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  percentage   of  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           P r e p a r e d   b y   M a r t i n   N e w   Page  9    
  10. 10.   Groupon  has  hired  aggressively  since  launch  and  now  has  over  7,000  staff  around  the   world.  Over  75%  are  based  outside  North  America.  Being  a  sales/marketing  company  it  is   no  surprise  that  50%  of  employees  work  in  sales  and  are  a  critical  factor  in  the  business.  As   Groupon  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  their   International  counterparts,  generating  nearly  4x  the  revenue  and  being  responsible  for   nearly  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 International               NORTH  AMERICA  VS  INTERNATIONAL     Groupon  is  currently  operating  in  43  countries.  International  operations  commenced  in  May   2010  with  the  acquisition  of  CityDeal  who  offer  deals  in  80  cities  across  16  European   countries.  In  the  quarter  ending  March  2011,  International  operations  accounted  for  58%  of   revenue  (up  from  37%  in  the  year  ending  December  2010).         P r e p a r e d   b y   M a r t i n   N e w   Page  10    
  11. 11.   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  America     Groupon  has  invested  heavily  on  marketing  with  the  International  segment  accounting  for   62%  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  will   decrease.  Unfortunately  the  Groupon  S-­1  does  not  provide  a  breakdown  of  marketing  spend   by  quarter  and  segment  to  see  if  Groupon  have  started  to  pull  back  on  North  American   marketing  spend.  If  not,  and  they  continue  to  push  into  new  markets,  marketing  expense   will  continue  to  grow.  Leveraging  social  media  is  considered  an  important  aspect  of  the  daily   deal  space  (hence  often  referred  to  as  social  group  buying).  If  Groupon  cut  back  on   marketing  spend,  they  will  need  to  ensure  that  subscribers/customers  continue  to  share   deals  using  the  social  media  tools  available.             P r e p a r e d   b y   M a r t i n   N e w   Page  11    
  12. 12.   Case  Studies:  Chicago,  Boston,  Berlin  and  London     Although  only  limited  data  is  available  in  the  S-­1  filing  for  each  of  the  4  cities,  it  is   interesting  to  make  a  comparative  performance  study  of  the  key  metrics  provided.     Each  city  is  showing  consistent  subscriber  growth  over  time.  London  has  grown  quickly  in   subscriber  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  more   subs  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 1,602,968     Despite  impressive  acquisitions  of  subscribers,  it  is  important  to  see  how  many  become   paying  customers.  Despite  London  achieving  1.6  million  subscribers,  to  date  only  145,000   have  purchased  a  Groupon  (a  conversion  of  just  9%  -­  compared  to  37%,  35%  and  18%  for   Chicago,  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           P r e p a r e d   b y   M a r t i n   N e w   Page  12    
  13. 13.   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  of   Groupons  purchased  per  subscriber.  Both  Chicago  and  Boston  has  seen  a  dramatic  fall  from   1.5  Groupons  per  subscriber  to  around  2  subscribers  per  Groupon  sold.  London  has  not  yet   managed  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 0.3     Both  Boston  and  Chicago  has  seen  the  average  price  per  Groupon  fall  over  time  and  even   Berlin  saw  a  drop  in  the  last  quarter.  London  however  continues  to  see  average  Groupon   ticket  price  climb  and  has  been  consistently  higher  than  the  other  cities  analyzed.  This  is   likely  due  to  the  higher  cost  of  living  in  London,  but  may  also  be  a  result  of  the  category  of   deals  being  offered  (eg  greater  share  of  high  price  activities  than  lower  ticket  items  like  fast   food,  manicure  deals).           P r e p a r e d   b y   M a r t i n   N e w   Page  13    
  14. 14.   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 $49.99     Although  the  quantity  sold  and  revenue  generated  for  each  featured  merchant  is  dependent   on  numerous  factors,  both  North  American  cities  have  seen  average  Groupon  sales  per   merchant  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 486 547 809 931         Both  Chicago  and  Boston  saw  average  revenue  per  merchant  rise  in  the  first  15  months  of   activity,  but  each  has  since  seen  average  deal  revenue  fall  back  to  December  2010  levels.     P r e p a r e d   b y   M a r t i n   N e w   Page  14    
  15. 15.   London  is  currently  outpacing  the  other  3  (generating  $46,500),  but  still  lags  behind   Chicago  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         P r e p a r e d   b y   M a r t i n   N e w   Page  15    
  16. 16.                               P r e p a r e d   b y   M a r t i n   N e w   Page  16    
  17. 17.   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   model.       Voucher  redemption  rates  and  timeline  of  redemption?   Si 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                 P r e p a r e d   b y   M a r t i n   N e w   Page  17    

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