Groupon S-1 Analysis
-
date post
17-Oct-2014 -
Category
Business
-
view
13.390 -
download
0
description
Transcript of Groupon S-1 Analysis
P r e p a r e d b y M a r t i n N e w
Page 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 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 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 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).
Subscriber and Customer Base
25
2
3,3
01
9,9
98
16
,92
0
44
,23
6
87
,29
8 18
5,2
31
39
6,6
00
64
4,7
28
83
1,2
09
3,9
96
5,6
41
19
,98
5
34
,37
3
72
,28
7
15
3,3
09
27
0,0
00
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
March June Sept Dec March June Sept Dec March
Groupon Revenue vs Gross Profit Trend($000's)
Revenue Gross Profit
March June Sept Dec March June Sept Dec March
Subscribers 152,203 627,051 1,807,278 3,434,610 10,445,521 21,369,608 50,583,805 83,100,006
Cummulative Customers 6,840 43,014 153,471 375,099 874,017 2,379,611 4,623,267 9,031,807 15,803,995
Groupons Sold 27,221 116,231 340,471 764,869 1,760,398 4,062,458 8,237,733 16,235,481 28,094,743
Groupon Key MetricsSubscribers, Cumulative Customers vs Groupons sold
Acquired 1.9 million subscribers May 2010 with CityDeal acquisition
P r e p a r e d b y M a r t i n N e w
Page 5
As at March 2011, Groupon had acquired 83.1 million subscribers, of which 15.8 million had
purchased 1 or more Groupons (19% conversion). Since launch, 60 million Groupons have
been sold.
When broken down by quarter, Groupon saw subscribers increase by an impressive 18.3
million in Q4 2010 (167% growth), vs a growth in additional unique subscribers of 2.2
million (96% growth). The chart below shows the gradual decline in the rate of conversion
of total subscribers.
Note: The conversion rate is likely to be less than shown since Groupon do not include “guest” purchases in their subscriber numbers.
15
2
47
5
1,1
80
1,6
27
7,0
11
10
,92
4
29
,21
4
32
,51
6
7 36
11
0
22
2
49
9
1,5
06
2,2
44
4,4
09
6,7
72
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
March June Sept Dec March June Sept Dec March
Tho
usa
nd
s
Quarterly growth of Groupon Subscribers and Customers
Additional Subscribers Additional customers
28.3%
24.5%
20.8%
25.4%
22.8%21.6%
17.9%19.0%
15.0%
17.0%
19.0%
21.0%
23.0%
25.0%
27.0%
29.0%
June Sept Dec March June Sept Dec March
Percent of Subscribers purchasing Groupons
P r e p a r e d b y M a r t i n N e w
Page 6
The average number of Groupons purchased per subscriber has held steady at around 2
over the last 18 months.
Average acquisition cost per new customer is 30$ (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$.
0.80.5 0.4 0.5 0.4 0.4 0.3 0.3
4.0
2.7
2.22.0 2.0
1.7 1.8 1.8 1.8
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
March June Sept Dec March June Sept Dec March
Groupon Key MetricsGroupons Purchased by Customer and Subscriber
Groupons per subscriber ratio Groupons per Customer ratio
$12.12
$30.40
$7.99
$30.74
$16.86$14.10 $12.88
$7.76
$0.00
$5.00
$10.00
$15.00
$20.00
$25.00
$30.00
$35.00
2009 2010 2010 2011
Yr end Dec 3mth End March
Acquisition Cost vs Revenueper subscriber
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 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.
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.
$9
$28$29
$22
$25
$21$22
$24$23
$0
$5
$10
$15
$20
$25
$30
$35
March June Sept Dec March June Sept Dec March
Average Groupon Deal Price
Services, 11%
Activities, 15%
Events, 11%
Food and Drink, 23%
Health and Beauty, 31%
Global Sales by CategoryQ1 2011 (Volume based)
P r e p a r e d b y M a r t i n N e w
Page 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.
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.
$2,767$3,529
1,688
3,971 $4,455
$7,499
$11,306$10,761
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
2009 2010
Sales Cost and Customer Acquisition vs Revenue per Featured Merchant
Sales Cost Marketing Total Sales/Marketing Revenue
$3
,40
5
$1
5,5
71
$1
3,0
69
$1
0,2
92
$1
5,2
38
$9
,12
7
$9
,89
4
$1
1,2
99
$1
1,3
55
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
$18,000
March June Sept Dec March June Sept Dec March
Average Revenue per Merchant
P r e p a r e d b y M a r t i n N e w
Page 9
It has often been reported that Groupon’s terms with merchants is a 50:50 revenue split. In
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.
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.
33% 37% 40%33%
45% 39% 39% 39% 42% 40%
67% 63% 60%67%
55% 61% 61% 61% 58% 60%
0%
20%
40%
60%
80%
100%
March June Sept Dec March June Sept Dec March Average
Gross Profit to Cost of Revenue Trend
Gross Profit Cost of Revenue
64.1% 60.8% 54.8% 58.1%
14.9%36.9%
9.0%32.3%
24.5%
32.8%
16.8%
27.8%
Yr 2009 Yr 2010 Q1 2010 Q1 2011
31,548 930,526 35,665 761,876
Operational Costs as a Percentage of Revenue
Cost of revenue Marketing Selling, General and Administrative
103.5%
130.5%
80.6%
118.2%
P r e p a r e d b y M a r t i n N e w
Page 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.
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.
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).
50%38%
54%
12%15%
11%
38% 47%36%
Total North America International
7107 1724 (24%) 5383 (76%)
Employee Head Count by function and Segment
Corporate & Operational
Customer Service
Sales
$181,307
$450,676
$119,803
Total North America International
Revenue per Sales EmployeeQ1 2011
16
31
12
Total North America International
Merchants per Sales EmployeeQ1 2011
P r e p a r e d b y M a r t i n N e w
Page 11
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).
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.
265,048
346,831
448,317
297,897
Yr end Dec 2010 3 mths end March 2011
North America vs International Revenue($000's)
International North America
62.2%
37.3%
37.8%
26.4%
% share
% of revenue
Marketing Spend ShareNorth America vs International
3 mths end March 2011
North America
International
P r e p a r e d b y M a r t i n N e w
Page 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.
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).
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
4 City ComparisonSubscriber 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
4 City ComparisonCumulative Customer trend
P r e p a r e d b y M a r t i n N e w
Page 13
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.
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).
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%
4 City ComparisonCustomer share of Subscribers
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
4 City ComparisonGroupons purchased per subscriber
P r e p a r e d b y M a r t i n N e w
Page 14
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.
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.
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
4 City ComparisonAverage Price per Groupon
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
4 City ComparisonGroupons Sold per Merchant
P r e p a r e d b y M a r t i n N e w
Page 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.
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
4 City ComparisonAverage Revenue per Featured Merchant
P r e p a r e d b y M a r t i n N e w
Page 16
P r e p a r e d b y M a r t i n N e w
Page 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
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