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You left out "generate massive sums of actual revenue from real, paying customers, and become the fastest growing company by revenue in history." I think a bun

You left out "generate massive sums of actual revenue from real, paying customers, and become the fastest growing company by revenue in history." I think a bunch of armchair analysts on this thread are going overboard with their predictions of imminent failure.

gaius 15y ago
Groupon spends $1.43 for every $1 in revenue. Hell they could just not do any business and increase their revenue 43% overnight...
- jaredsohn 15y ago
  No; that would increase their profit at the expense of revenue.
- 3pt14159 15y ago
  Does that spending include their dividends or other cash outflows to the founders? Because if it is straight spending money they are in trouble.
  - imjustatechguy 15y ago
    It doesn't include the hundreds of millions which have been cashed out -- there numbers would look even worse if they included those numbers.
rsynnott 15y ago
Ah, revenue. Yes, I remember this from last time round; revenue is what matters, regardless of the costs involved in producing that revenue, or its uncertain future footing. Right.
- encoderer 15y ago
  From last time around? In the 90s? I don't. Then, it was all about subscribers/visitors, with the murky promise to monetize somehow. And many of the startups then that DID post revenue were involved in quasi-illegal quid pro quo scams where Startup A invests in Startup B with the understanding that B will use that newfound capital to purchase from A.
- cte 15y ago
  From Groupon's S-1: "To demonstrate the economics of our business model, we have compared the revenue and gross profit generated from the North American subscribers we acquired in the second quarter of 2010, which we refer to as our Q2 2010 cohort, to the online marketing expenses incurred to acquire such subscribers. The Q2 2010 cohort is illustrative of trends we have seen among our North American subscriber base. The Q2 2010 cohort included 3.7 million subscribers that we initially spent $18.0 million in online marketing to acquire in the second quarter of 2010. In that quarter, we generated $29.8 million in revenue and $12.8 million in gross profit from the sale of approximately 1.2 million Groupons to these subscribers. Through March 31, 2011, we generated an aggregate of $145.3 million in revenue and $61.7 million in gross profit from the sale of approximately 6.3 million Groupons to the Q2 2010 cohort. In summary, we spent $18.0 million in online marketing expense to acquire subscribers in the Q2 2010 cohort and generated $61.7 million in gross profit from this group of subscribers over four quarters." They are seeing >3x profit on typical cohorts, so they decided to buy as many users as possible (which is smart).
justin_vanw 15y ago
This same argument applies if I were to convince 1M people to each give me $1000, all on one day, I would go from 0 to $1B in revenue in one day. The thing is, it still applies if I take that $1B and burn it in a big bonfire. I suspect you must see why your statement isn't convincing now, right? If I raised a few hundred million dollars, I could create a website where you went, and gave your credit card number. I would charge your card $1.00 and then credit your card $1.40. I would be Groupon, except I would be slightly more profitable.
- encoderer 15y ago
  As sensational as your statement is, it has absolutely no relevance to the analysis of Groupon as a business. Groupon believes they have a reliable fix on the Customer Lifetime Value. Some very smart investors who have done _actual_ analysis of Groupon (including the team that did due diligence for Google when they made the buyout offer earlier this year) clearly have at least some faith in these CLV numbers. All of the "armchair analysis" you see here -- including your opinion on the subject -- is looking at a snapshot of Groupon from their S1 backward. That's fine but if you want to leave pro forma out of it, but then quit making pro forma statements about the failure and decay of the business! All businesses are a money-multiplier machine, right? What you're complaining of is that by your analysis, that multiplier for Groupon is 0.72. Not a very good money machine at all really. Suppose that when you factor in the CLV, that multiplier falls into the range you'd expect from a company that has low variable product costs and a large sales team: 1.21. If you run that company, once you have enough data to really believe in the efficacy of those numbers, then you're going to do everything you can to purchase as many customers as possible. And if you're an investor, you're going to encourage management to do just that. I mean, this is the very handbook on non-seed startup investing. Find a profitable CLV model, and scale it out. But I'll give you this: you did a good job creating some outrageous, tongue-wagging scenarios.
  - _delirium 15y ago
    I don't think it's too outrageous a scenario in response to a claim that Groupon is interesting because it's "become the fastest growing company by revenue in history". The point is that becoming the fastest-growing company by revenue in history is not an independent accomplishment, because all it takes to do that is a large amount of money and a willingness to burn it. It is a measure of their ability to attract funding that can support spending, but not an independent measure of success, since, given sufficient funding, you can always buy revenue, e.g. by selling $100 bills for $50. To show that Groupon is more interesting than the money-burning scenario requires some metric other than revenue or revenue growth.

gaius 15y ago

Groupon spends $1.43 for every $1 in revenue. Hell they could just not do any business and increase their revenue 43% overnight...

jaredsohn 15y ago
No; that would increase their profit at the expense of revenue.
3pt14159 15y ago
Does that spending include their dividends or other cash outflows to the founders? Because if it is straight spending money they are in trouble.
- imjustatechguy 15y ago
  It doesn't include the hundreds of millions which have been cashed out -- there numbers would look even worse if they included those numbers.

rsynnott 15y ago

Ah, revenue. Yes, I remember this from last time round; revenue is what matters, regardless of the costs involved in producing that revenue, or its uncertain future footing. Right.

encoderer 15y ago
From last time around? In the 90s? I don't. Then, it was all about subscribers/visitors, with the murky promise to monetize somehow. And many of the startups then that DID post revenue were involved in quasi-illegal quid pro quo scams where Startup A invests in Startup B with the understanding that B will use that newfound capital to purchase from A.
cte 15y ago
From Groupon's S-1: "To demonstrate the economics of our business model, we have compared the revenue and gross profit generated from the North American subscribers we acquired in the second quarter of 2010, which we refer to as our Q2 2010 cohort, to the online marketing expenses incurred to acquire such subscribers. The Q2 2010 cohort is illustrative of trends we have seen among our North American subscriber base. The Q2 2010 cohort included 3.7 million subscribers that we initially spent $18.0 million in online marketing to acquire in the second quarter of 2010. In that quarter, we generated $29.8 million in revenue and $12.8 million in gross profit from the sale of approximately 1.2 million Groupons to these subscribers. Through March 31, 2011, we generated an aggregate of $145.3 million in revenue and $61.7 million in gross profit from the sale of approximately 6.3 million Groupons to the Q2 2010 cohort. In summary, we spent $18.0 million in online marketing expense to acquire subscribers in the Q2 2010 cohort and generated $61.7 million in gross profit from this group of subscribers over four quarters." They are seeing >3x profit on typical cohorts, so they decided to buy as many users as possible (which is smart).

justin_vanw 15y ago

This same argument applies if I were to convince 1M people to each give me $1000, all on one day, I would go from 0 to $1B in revenue in one day. The thing is, it still applies if I take that $1B and burn it in a big bonfire. I suspect you must see why your statement isn't convincing now, right? If I raised a few hundred million dollars, I could create a website where you went, and gave your credit card number. I would charge your card $1.00 and then credit your card $1.40. I would be Groupon, except I would be slightly more profitable.

encoderer 15y ago
As sensational as your statement is, it has absolutely no relevance to the analysis of Groupon as a business. Groupon believes they have a reliable fix on the Customer Lifetime Value. Some very smart investors who have done _actual_ analysis of Groupon (including the team that did due diligence for Google when they made the buyout offer earlier this year) clearly have at least some faith in these CLV numbers. All of the "armchair analysis" you see here -- including your opinion on the subject -- is looking at a snapshot of Groupon from their S1 backward. That's fine but if you want to leave pro forma out of it, but then quit making pro forma statements about the failure and decay of the business! All businesses are a money-multiplier machine, right? What you're complaining of is that by your analysis, that multiplier for Groupon is 0.72. Not a very good money machine at all really. Suppose that when you factor in the CLV, that multiplier falls into the range you'd expect from a company that has low variable product costs and a large sales team: 1.21. If you run that company, once you have enough data to really believe in the efficacy of those numbers, then you're going to do everything you can to purchase as many customers as possible. And if you're an investor, you're going to encourage management to do just that. I mean, this is the very handbook on non-seed startup investing. Find a profitable CLV model, and scale it out. But I'll give you this: you did a good job creating some outrageous, tongue-wagging scenarios.
- _delirium 15y ago
  I don't think it's too outrageous a scenario in response to a claim that Groupon is interesting because it's "become the fastest growing company by revenue in history". The point is that becoming the fastest-growing company by revenue in history is not an independent accomplishment, because all it takes to do that is a large amount of money and a willingness to burn it. It is a measure of their ability to attract funding that can support spending, but not an independent measure of success, since, given sufficient funding, you can always buy revenue, e.g. by selling $100 bills for $50. To show that Groupon is more interesting than the money-burning scenario requires some metric other than revenue or revenue growth.