Groupon launched in 2008 and became the largest online coupon company and largest US internet IPO. While it grew rapidly, the company faced criticism over financial revisions and a challenging business model replicated by competitors. Groupon's revenues increased exponentially but costs remained high due to refunds not recovered from merchants. Its future depends on adapting to the needs of merchants and customers.
2. Executive Summary
Launched in 2008, Groupon, Inc. is currently
the world’s largest online coupon company
with close to 40 million active customers. In
2011, Groupon became the largest IPO by a
U.S. Internet company (Barr & Baldwin, 2011)
since Google. The company declined a $6
billion takeover offer from Google in late 2010
(Geron, T., 2011).
3. In April 2012, the SEC examined the
company’s revision of its first set of financial
results as a public company following two
finance revisions before its November IPO
(Raice & Eaglesham, 2012). Following the SEC
examination, Groupon shares plunged and
accounting experts and investors alike
critiqued the company’s leadership team.
4. Groupon announced it would revise results for
the fourth quarter after discovering
management had not set aside enough money
for customer refunds, widening its loss by
$22.6 million (Raice & Eaglesham, 2012).
5. Although the company achieved enormous
growth in just a few years, critics wonder if the
coupon giant will survive with a business
model that has and continues to be replicated
by unlimited competitors, including Living
Social.
6. Disruption
• Print Media
– Shift in advertising dollars once spent on print
advertising to partnering with Groupon
– Groupon’s online dominance and massive
subscription base allows a whole new population
of consumers access to products and services they
may not have known about through traditional
advertising means
7. Disruption
• Mobile
– Groupon launches app for iPhone and iPod Touch
– In Feb. 2012, Groupon announced record mobile
performance in N. America in December 2011
with one quarter of all Groupon vouchers
purchased through a mobile device, including
consumer and merchant app usage up significantly
year over year
8. Disruption
• Digital
– Groupon was confronted with digital loyalty cards
that are distributed and controlled by the business
owner, not the coupon site
– Merchants provide customers with a discount or
reward for their loyalty
– Enable merchant to collect viable data on the
customer
9. Business Model
Groupon’s business model is aligned with the
Chameleon model, which offers customers
personalized products and services that are
adapted to the customer’s needs (Jansen, W.,
2007). Groupon focuses on the consumer’s
growing need for individualization, to tailor
services and products that match the needs of
individual customers.
10. Value Model
• Groupon unveils Personalized Deals in 2010
– That tailors each subscriber’s daily deals to their
personal preferences and buying history (Groupon
Launches Personalized Deals, 2010)
– As each customer shares information and forms
buying patterns, deals become more relevant
11. Value Model, contd.
• Groupon is able to anticipate the needs of the
customer and only sends those deals that
correspond to those unique interests,
ultimately saving the customer time from
searching for the right services or products
themselves
12. Management of Customer Relations
• Groupon approaches customers directly
through email. Since deals are delivered to the
subscriber’s inbox daily, Groupon remains top
of mind and the hyper-local deals that are
familiar to the customer gets the attention
and maintains the interest of subscribers.
13. Management of Customer Relations
• The deals are presented in a unique way with
quirky, literary descriptions of the deal to
entice and often times add humor to
personalize the deal to the customer
• Groupon’s writers are tasked with “seducing”
subscribers to either purchase a deal, or keep
reading Groupon’s emails (Streitfeld, D., 2011)
14. “Grouponitis”
• The addiction to purchasing daily group
coupons, no matter how superfluous the deal
(Doyle, B., 2011)
• Groupon is able to play on the basic
motivation of saving money by reducing the
risk involved in paying for something a
customer may not have a real desire for
15. Long Term Outlook
• Social shopping is ultimately going to be a
“winner takes most” business
• Groupon holds the top spot with both first-
mover advantage and extremely robust
technology
• Constant competition as business model is
easily replicated
16. Financial Condition
• Groupon’s revenues have grown exponentially
between 2009 and 2011. Costs and expenses
reached their highest peak between 2009 and
2010, with significant expenses still reported
in 2011. Groupon acknowledges an increased
loss of revenue for both periods driven by an
increase in credit card processing fees and
refunds that were not recoverable from the
merchant.
17. Revenues
• Groupon continues to show robust growth,
with a revenue increase from $172.2 million in
the fourth quarter of 2010 to $492.2 million in
the fourth quarter of 2011
18. Free Cash
• Groupon had $8,325, $-315,397 and $794,770
available in free cash between the years
2009-2011, respectively (in thousands)
• 2010 free cash amount reflects Groupon’s
acquisition of CityDeals, a European-based
collective buying power business
19. Financial Outlook
• Foreign exchange rates pose a challenge and
make the company vulnerable for future
losses
– Groupon has operations in 47 international
countries and was only able to grow international
segment revenue by a little less than 13%
compared to 2010
20. • Refunds
– Groupon remains highly vulnerable with costs of
revenue related to refunds that are not
recoverable by the merchant
– In 2010, Groupon reported an $8.6 million
increase in refunds compared to $59.9 million in
2011, a 86% increase
21. Analysts Take
• Street Insider analysts said Groupon showed
strong Q1 results and Q2 sales guidance.
• Morgan Stanley analyst Scott Devitt said he
believes Groupon and Daily Deals are here to
stay.
• Competitors have not had much of an impact
on Groupon, not gaining any meaningful
traction or having deployed new innovations.
22. Risk Factors
• Refunds
– Company admitted it failed to predict how many
people would return new high-priced deals and
demand refunds (Dembosky, A., 2012)
– Groupon relied on historical patterns of returns on
traditional deals, rather than forming a predictive
model to take into account the effect of the deals
offered on those purchasing them
23. Risk Factors, contd.
• Business Model
– For continued success, Groupon must provide ROI
for merchant partners
– Must transform one-time customers into repeat
customers
– Launch of Groupon Rewards will allow customers
to unlock special Groupon deals from their
favorite businesses through repeat visits
24. Final thoughts
• Groupon is in a relatively new market that has a limited
history to be able to predict whether growth can continue
or be maintained
• Groupon’s success rides on the interest of merchant
partners and subscribers, who may no longer want or need
Groupon’s service
• For long-term success, Groupon must be flexible to adjust
and or adapt its business model to fit the needs of
merchants and customers at that time
