Groupon india strategic study

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Groupon india strategic study

  1. 1. Groupon India Strategic Study Virendra Pandey
  2. 2. Sources of Data  All financial data are obtained from the latest S-1 filing by Groupon to the SEC and Annual filings by Jasper Infotech Pvt. Ltd. (Snapdeal )
  3. 3. Executive Summary      India is an emerging economy A large consumer base is untapped. There are 151 millions internet users in India (International Telecommunication Union) Out of every 5, 3 users use online retailing website. In November 2012, 7.6 million Indians visited Coupon sites, representing 16.5 percent of Internet users in the market. Snapdeal.com led the category with 5.2 million visitors, followed by Mydala.com with 1.4 million visitors and Crazeal.com with nearly 1 million visitors.
  4. 4. Players in online couponing segment. (In this presentation)  Snapdeal  Groupon India ( India subsidiary of Groupon Inc.)
  5. 5. Business Model Small Buyers and Sellers Groupon Disorganized Structured
  6. 6. Process A local daily deal is displayed on Groupon Buyer pays for the deal Groupon collects the payment Seller is paid within contracted days splits revenue with the seller The deal is valid if a minimum no. of people buy Buyer may use the deal in prespecified time Buyer may return to the seller without Groupon
  7. 7. What this business Brings to the table
  8. 8. Guaranty Buyers Purchased Deals Sellers Minimum Group Size
  9. 9. Value Creation  By facilitating trade    Bringing together small sellers and individual buyers Giving small businesses visibility to large audiences locally Exposing individual consumers to a wide selection of daily deals to choose from
  10. 10. Benefits to Sellers Wide exposure  Higher trial rates as compared to traditional advertising  Opportunity to induce repeat business  A minimum number of customers are guaranteed when a deal goes on live 
  11. 11. Benefits to Buyers A wide selection of deals  Large discounts  Opportunity to try out services/products that are usually expensive  Groupon guarantees the validity of the deal 
  12. 12. How Has it Worked Out for the players?
  13. 13. Groupon • Groupon.com was launched in November 2008. • The website features daily deals on the best stuff to do, see eat and buy in 48 countries and counting. Has over 10000 employees Groupon is the fastest growing company, reaching biilion dollars of revenue faster than anyone ever. • •
  14. 14. Groupon India  Groupon entered India through acquisition of the Indian „deal of the day‟ site – SoSasta.com.  Rebranded as crazyzeal.com, afterwards converted into Groupon India.  294th traffic rank in India. (Alexa.com)
  15. 15. Some statistics
  16. 16. Groupon India
  17. 17. Who visits Groupon.co.in
  18. 18. Groupon India
  19. 19. Groupon Inc.Revenues (Mil. $) 2500 2000 1500 1000 500 0 Dec-09 Dec-10 Dec-11 Dec-12
  20. 20. Operating Income (Mil. $) 0 -50 -100 -150 -200 -250 -300 -350 -400 -450 Jan-08 Jan-11
  21. 21. North American Deals Services 11% Activities 23% Retail 17% Events 6% Health & Beauty 17% Food & Drinks 26%
  22. 22. International Deals Services 12% Retail 4% Activities 11% Events 16% Health & Beauty 34% Food & Drinks 23%
  23. 23. Marketing SWOT
  24. 24. Strengths and Weaknesses  Strengths     Brand equity among the consumers as well as merchants A large established customer as well as merchant base Ability to innovate to offer different deals Weaknesses    Highly unprofitable Running out of cash Corporate governance is an issue
  25. 25. Opportunities and Threats  Opportunities      Entering international markets via partnerships or M&As Offering a wider selection of deals Offering location-based deals Increasing the merchant base Threats   Fierce competition in international markets May not find investors to fund operations
  26. 26. Groupon Advantage Groupon has more than 100 million emails in the database
  27. 27. Groupon Inc.- The Star Groupon commands a large market share in daily deals market  It is also in a market that is growing leaps and bounds  However, can we label Groupon as a Star?  The next few slides explain why we can’t 
  28. 28. Groupon Inc. Valuation
  29. 29. Offer Too Good To Refuse? In November 2010, Google offered to buy Groupon for $6 billion  Groupon refused this massive offer    they believed their potential was much more This was the first time Groupon’s valuation came into focus
  30. 30. IPO Frenzy Just before Groupon filed for S-1 with the SEC, the market put a value of $25 billion to Groupon  On June 2, 2011 Groupon files for an IPO at a valuation of $30 billion 
  31. 31. Attacks on Valuation  Academicians pointed out the issues with accounting at Groupon  Groupon shows increasing cash problems  Operating cash flow decreased from 290.45M in 2011 to 266.83M 2012.
  32. 32. Criticisms and Controversies
  33. 33. Business Development For Groupon “marketing expenses” mean money spent to acquire subscribers  Selling, general, and administrative expenses (SG&A) mostly include the money spent on acquiring merchants  Combined marketing and SG&A have been much larger than the revenue so far 
  34. 34. Small Business Suffer  Daily deals actually lead to losses to small businesses     can’t handle the large influx of customers with large discounts most customers don’t return Groupon takes a large chunk (up to 50%) of the already discounted revenue Groupon pays only over sixty days, thus creating liquidity crunch for merchants
  35. 35. Price Promotion vs. Branding Although price promotions may increase revenues in the short term, they may dilute brand equity  Regular customers may start using Groupon thus reducing the revenue premium that the merchant obtains from such loyal customers 
  36. 36. Quality of Subscribers  Groupon subscriber database has poor quality    only about 20% subscribers have ever purchased a Groupon half of these purchasers never bought another Groupon this translates into large acquisition costs per buying subscriber for Groupon compared to the small revenue these customers generate
  37. 37. Competitive Advantage  Many critics claim that Groupon’s business is easily replicable      currently, however, only LivingSocial has emerged as a major GLOBAL competitor Facebook and many others dropped out this perhaps indicates that many don’t think that the business is profitable in China and India, Groupon is struggling due to local competition Google and Amazon have entered this space
  38. 38. IPO Groupon first set the IPO price at $18 per share and then subsequently increased it to $20 per share  The IPO had a nice 30% pop at the end of the opening day. The stock closed at $26  The price has been volatile ever since. At one point the shares traded at as low as $9 per share. 
  39. 39. Stock Performance
  40. 40. Sanpdeal
  41. 41. Snapdeal     Launched in Feb 2010 by two entrepreneurs, Kunal Bahl and Rohit Bansal,One a graduate from Wharton Business School and the other an IIT Delhi alumnus. They own Jasper Infotech a multi-channel direct marketing platform company under which Snapdeal operates. A pioneer in the online discounting market in India. It holds the 18thrank among top traffic receiving sites in India. (Alexa, Snapdeal site statistics, 2013) It is the leader in online couponing segment in India. Daily time Spent on site 6:26 minutes.
  42. 42. Funding    Round 1: In January 2011, received a funding of $12 million from Nexus Venture Partners and Indo-US Venture Partners Round 2: In July 2011, the company raised a further $45 million from Bessemer Venture Partners, along with existing investors Nexus Venture Partners and Indo-US Venture Partners Raised a 3rd round of funding worth $50 million from eBay and received participation from existing investors – i.e. Bessemer Venture Partners, Nexus Venture and IndoUS Venture Partners. With this round, Snapdeal has raised a total of $102 million of funding.[5]
  43. 43. Acquisitions  In June 2010, acquired Bangalore-based group buying site, Grabbon.com  In April 2012, acquired esportsbuy.com, an online sports goods retailer based out of Delhi.  In May 2013, acquired Shopo.in, an online marketplace for Indian handicraft products
  44. 44. Financial Highlights  Net loss of 81,55,8,193 cr. For the FY ending march 2012.  Company expects to record 2000 cr. Of revenue for the FY 2014.  Cash pile of 99,23,93,342. (FY 2012)  Working Capital (excluding cash) fully financed through current liabilities.
  45. 45. Summary     Though revenue growth is under pressure but recent round of funding shows a promising future . Despite book losses Snapdeal has large market share and brand presence. Current economic slowdown is also responsible for a chunk of revenue growth slump. Strategic alliance with ebay will build the company‟s strength. E tailing segment has increased the strength and has given an edge over Groupon India.
  46. 46. Groupon : Way Ahead       Groupon has not been aggressive in the Indian market. Should resort to Inorganic growth by acquiring companies which are complimentary to its own business. Could use $ 1.2 billion dollar on its book for serial acquisitions. Adding E tailing segment will add into the revenue growth. Bank on its international brand value. Should focus on keeping fixed cost as low as possible.
  47. 47. Thank you !

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