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Not entirely true when we start to look at repeat customer numbers, etc. Even if the list doesn't change, the number of purchases per customer will likely cont

Not entirely true when we start to look at repeat customer numbers, etc. Even if the list doesn't change, the number of purchases per customer will likely continue to decline over time. In that case, I think the best argument you can make is that their marketing budget is about more than typical marketing budgets: that is, they're building a valuable (if depreciating) asset. Fair enough, I think that's a legit argument. But they don't stop there; they actually claim that because their marketing expenses are geared towards asset building that they shouldn't count. That's a pretty big leap; at best, from the conclusion drawn above, their marketing budget could considered as a typical company might consider manufacturing or development cost. That is, if Groupon's value is truly derived (at least in part) from the size of their network, then the costs associated with building that network are analogous to building product in more traditional companies. I agree that their marketing spend has different impact to their business than other businesses; but I don't believe that means they can just pretend they aren't spending that money.

nl 15y ago
the number of purchases per customer will likely continue to decline over time. That's not correct. While the list is growing the number of purchases per customer will probably decrease, and when it is shrinking I would imagine it would increase (because the people who get no value from it will remove themselves, while those who get value will stay on the list) If GroupOn can continue to provide value to customers they will keep using it. Much of their business is currently in the "door buster" special type offers, but it is easy to see them offering smaller, 10%-off-type offers from retailers they have a relationship with in addition to the "door buster" offers. Places like supermarkets would pay for that, and consumers would get benefit too. the costs associated with building that network are analogous to building product in more traditional companies. Yes, exactly. It's not abnormal for companies that have huge up-front investments to report their operational financial situation differently to the operational expenses. Think of sports stadium operating companies, or companies that build toll-roads, railways of other infrastructure: they have huge upfront costs, but report that cost by amortising it over the operating life of the infrastructure. At the same time, they also report their finances without taking this cost into account, because that cost is more relevant to their business. I guess GroupOn could have tried to amortise the customer acquisition costs, but that would be hugely speculative. In this case the raw operating numbers were more useful. GroupOn may or may not have problems with their business model. That is orthogonal to the fact that reporting that ACSOI number made sense and was useful for any investor to know.
pbreit 15y ago
> the number of purchases per customer will likely continue to decline over time Actually, as Groupon dials down on acquisition and dials up on activity, the reverse is more likely. > the costs associated with building that network are analogous to building product in more traditional companies Right. Which is why product development costs are frequently split out form operating expenses into line items such as R&D.

nl 15y ago

the number of purchases per customer will likely continue to decline over time. That's not correct. While the list is growing the number of purchases per customer will probably decrease, and when it is shrinking I would imagine it would increase (because the people who get no value from it will remove themselves, while those who get value will stay on the list) If GroupOn can continue to provide value to customers they will keep using it. Much of their business is currently in the "door buster" special type offers, but it is easy to see them offering smaller, 10%-off-type offers from retailers they have a relationship with in addition to the "door buster" offers. Places like supermarkets would pay for that, and consumers would get benefit too. the costs associated with building that network are analogous to building product in more traditional companies. Yes, exactly. It's not abnormal for companies that have huge up-front investments to report their operational financial situation differently to the operational expenses. Think of sports stadium operating companies, or companies that build toll-roads, railways of other infrastructure: they have huge upfront costs, but report that cost by amortising it over the operating life of the infrastructure. At the same time, they also report their finances without taking this cost into account, because that cost is more relevant to their business. I guess GroupOn could have tried to amortise the customer acquisition costs, but that would be hugely speculative. In this case the raw operating numbers were more useful. GroupOn may or may not have problems with their business model. That is orthogonal to the fact that reporting that ACSOI number made sense and was useful for any investor to know.

pbreit 15y ago

> the number of purchases per customer will likely continue to decline over time Actually, as Groupon dials down on acquisition and dials up on activity, the reverse is more likely. > the costs associated with building that network are analogous to building product in more traditional companies Right. Which is why product development costs are frequently split out form operating expenses into line items such as R&D.