Groupon S-1 Analysis

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A short 17 page report analysing some of the operational metrics detailed in the Groupon S-1 filing.

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 1

85

,23

1

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 3

6

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

Averag