Groupon india strategic study

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Groupon India Strategic Study Virendra Pandey
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    17-Oct-2014
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Transcript of Groupon india strategic study

Page 1: Groupon india strategic study

Groupon India Strategic Study

Virendra Pandey

Page 2: Groupon india strategic study

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 )

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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.

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Players in online couponing segment. (In this presentation)

Snapdeal Groupon India ( India subsidiary of Groupon Inc.)

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Business Model

Small Buyers and Sellers

Disorganized

Groupon

Structured

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Process

A local daily deal is

displayed on Groupon

Buyer pays for the deal

Groupon collects the

payment

The deal is valid if a minimum no. of people

buy

splits revenue with the seller

Seller is paid within

contracted days

Buyer may use the deal in

prespecified time

Buyer may return to the seller without

Groupon

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What this business Brings to the table

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Guaranty

Purchase

d Deal

s

Minimum Grou

p Size

Buyers Sellers

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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

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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

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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

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How Has it Worked Out for the players?

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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.

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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)

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Some statistics

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Groupon India

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Who visits Groupon.co.in

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Groupon India

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Groupon Inc.Revenues (Mil. $)

Dec-09 Dec-10 Dec-11 Dec-120

500

1000

1500

2000

2500

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Operating Income (Mil. $)

Jan-08 Jan-11-450

-400

-350

-300

-250

-200

-150

-100

-50

0

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North American Deals

Activities23%

Events6%

Food & Drinks26%

Health & Beauty

17%

Retail17%

Services11%

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International DealsActivities

11%

Events16%

Food & Drinks23%

Health & Beauty

34%

Retail4%

Services12%

Page 23: Groupon india strategic study

MarketingSWOT

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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

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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

Page 26: Groupon india strategic study

Groupon AdvantageGroupon has more than 100 million emails in the database

Groupon has partnered with more than 75,000 merchants

Groupon has more than 100

million emails on the file

Groupon

Advantage

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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

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Groupon Inc. Valuation

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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

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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

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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.

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Criticisms and Controversies

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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

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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

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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

Page 36: Groupon india strategic study

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

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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

Page 38: Groupon india strategic study

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.

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Stock Performance

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Sanpdeal

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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.

Page 42: Groupon india strategic study

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]

Page 43: Groupon india strategic study

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

Page 44: Groupon india strategic study

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.

Page 45: Groupon india strategic study

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.

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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.

Page 47: Groupon india strategic study

Thank you !