Reassessing Groupon Prior to Its IPO


Image Source: Mashable

Groupon’s greatly reduced IPO is apparently set to take place on Friday, November 4 in an environment much less friendly than originally envisioned last spring.

The bloom has come off for a number of reasons. Groupon has almost no barriers to entry and has had to contend with dozens and dozens of copy cats –apparently 600 at the peak. The glut of services has led to consumer and merchant overload (including lower commissions in some cases), and perhaps fatigue.

The result is that “the fastest growing company ever” appears to have slowed down and perhaps even declined in its core daily deals business, per Yipit Data.

Groupon’s evident slow-down may have helped the company run-thru two short-lived COOs — a very unusual situation prior to an IPO. The unorthodox distribution of its last round of funding to its initial investors also appeared to signal an internal lack of confidence in the company, greed, or both.

The same could be said for the unusual accounting method in the initial S1 leading to the IPO, which sought to downplay the company’s marketing costs in the U.S. and especially, abroad. These have, in part, caused the company to be heavily-in-the-red.

At the same time, new tools and platform products that would extend Groupon’s relationships with SMBs, specifically GrouponNow instant deals, which are mobile-oriented, have had slow ramp-ups. They’ve only had a nominal impact on the bottom line.

Again, per Yipit Data, Groupon Now resulted in less than $1 million in net revenue from May to September – although results will be bolstered now that the product is offered in 25 markets and achieves greater penetration. Other new products such as Groupon Goods, Groupon Live and Groupon Getaways have had promising results, but are not yet strong enough to bet the company’s future.

Groupon’s troubles have not been suffered in isolation. They’ve had a trickle down effect on other Deals Companies. Most notably, BuyWithMe, the #3 or #4 player in the space, was unable to raise money in the wake of Groupon’s problems, and has now apparently been forced to sell at a fire sale price to Gilt Groupe, which may now grab its technology, lists and some of its sales force – even though GiltCity currently operates as a slightly different “flash sales” site. Groupon’s problems have also apparently caused Living Social, the #2 player, to put off its own IPO plans.

Is it all bad for Groupon and the Deals space? Of course not. Groupon continues to have a basically sound business – in the last quarter, it cut off most of its marketing dollars with little apparent impact on its business. This is what we’d expect. Groupon is not a new movie, and it doesn’t need to be constantly marketed.

Groupon also continues to leads the deals segment in virtually every market it is in. Its product lineup is also increasingly promising. At the same time, we see validation in the model by the major investments in the deals space being made by Google, AT&T and Amazon (but not Facebook or Yelp).

In our view, the big money may have been nice for the early investors – although they found their own path to getting paid back. Strategically, the $25 billion valuation was largely a yoke around Groupon’s neck. At a sharply reduced valuation of perhaps $12 billion – still twice the $6 billion offered by Google last winter — the company will now have a chance to grow its set of tools and platforms more organically…and to a certain extent, in its own sweet time.

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