5 ms·

Deals are in theory the most attractive segment of a given market. It would be highly enlightening to know as to why Groupon is running at such a loss. The way

by neya 14y ago

Deals are in theory the most attractive segment of a given market. It would be highly enlightening to know as to why Groupon is running at such a loss. The way I see it - Deals are a win for the customer and the merchant (and Groupon too). If that's the case, then why is Groupon struggling so much? Is there a flaw in their strategy that someone can point out? Or, is it so that the Deals space is overlooked by the merchants?? An in-depth analysis would greatly help everyone.

mrich 14y ago
They seem to have a high acquisition cost for deals. Many merchants have already been burnt by them - they often make a hefty loss, so acquisitions get harder. You could also argue that most of the merchants using Groupon are already businesses on the downturn, so they will only use Groupon once and not see any gain from it since their business was unpopular to begin with, and the only way customers would be somewhat satisfied with the experience is at a price discount the business simply cannot survive on. Perhaps Groupon could do some better segmentation of their users. They must have quite a lot signed up, so why not offer many more deals overall, and each user gets the three deals he is most likely to buy. Also, you take a much smaller portion of the revenue so the business can survive. This way, Groupon would earn more through increased volume (it is kind of unprofessional to send a customer a similar deal six times a month - if I didn't buy it before why waste your reach to show it again to me?) In essence they would be a highly-tailored ad agency getting a small commission on a huge number of sales.
- neya 14y ago
  >They seem to have a high acquisition cost for deals. Thanks for the reply, I kind of agree with you on that one.
- caffeine5150 14y ago
  I think part of it is that groupon got started at a time of peak desperation for retailers. They were desperate to try anything. They may still be desperate, but wiser.
suresk 14y ago
I think it comes down to a few factors: 1) Their sales and marketing expenses are incredibly high. 2) I think the kind of deals Groupon does only work for some merchants - those with high margins, new businesses, and those that are really good at upselling once the customer gets in the door. There have been a lot of highly-publicized accounts of merchants who felt like Groupon deals ended up being very bad for them. The big hit the merchant takes sort of limits the amount and frequency of repeat deals. 3) A ton of competitors have sprung up, since there is a fairly low barrier to entry. In addition to some of the nationwide competitors, there are a lot of local companies like newspapers and tv stations that already have good sales networks and have been copying the Groupon model. This increases Groupon's sales costs and probably squeezes their margins since they may have to offer the merchant a bigger cut to compete. I think it's a good concept and by being the most well-known business in the space they have a pretty significant advantage, but I also think it is a challenging market to be in and they are probably still overvalued.
- jmilloy 14y ago
  It's strange to see both 1 and 3. If the expenses are inherently incredibly high, then there couldn't be a low barrier to entry. Why are groupon's expenses so high, then?
  - taybin 14y ago
    Mismanagement can cause 1 as well.
    - VonGuard 14y ago
      Frankly, I think ya'll hit the nail on the side, but not collectively on the head. Take a little from column A, little from column B, and we can see the real problems with Groupon. As one commenter said, they only work for certain merchants with high markup. This is why there's so many Chiropracters and massagers on these deal sites. Trouble is, all those services are once a year kinda things. Thus, you get one massage on Groupon or Amazon or whatever, and then next week they;re hawking another massage, are you gonna get it? Combine this with the fact that Groupon is reknowned for being slow to pay merchants. That's fine if yer paying back Wal-Mart, who has lots of money, but for small businesses that use these services, 3 months waiting for payment can be crippling. Read about Groupon's payment policies. They're assholes. Slow assholes. And finally, none of this was ever proprietary or complex. Groupon had no firewalls or sandbags against competitors, and frankly, the way it treats its client businesses, it was bound to be fucked eventually. My folks have a boutique ad firm in a small town. For the past year, they've gotten calls EVERY DAY from Groupon-like services, or even Groupon aggregators who act as middlemen for these services. It's a hugely growing market but never once has Groupon been at the table for one of these calls. They're being eaten alive.
Torn 14y ago
Don't groupon deals actually hurt a lot of small merchants? I remember reading some articles back in the day about the profit margins for merchants participating in groupon 50%+ off schemes (i.e. slim to negative) and that people would turn generally up to take advantage of offers but not become repeat customers.
digeridoo 14y ago
The loss is tiny and indicates profitability is in sight. GroupOn currently has a market cap of about 1.8B, which seems reasonable for a company that size, though perhaps still a bit on the high side given how low their margins are likely to remain. They went through their childhood years thinking they were going to take over the world, and not too long ago Google offered $6 billion for those dreams. No wonder investors still had some hopes that this was something more than an ordinary business of an ordinary scale. It's not. If anyone would like to keep dreaming, AMZN was running over $300 million losses on a ~$600 million revenue every single quarter around the year 2000.
- Tloewald 14y ago
  Amazon is still smoke and mirrors. E.g. Current P/E is -- I am not making this up -- slightly under 3000. But, like Milo Minderbinder, they'll make it up on volume.
  - suresk 14y ago
    That P/E is somewhat misleading, because it is heavily skewed by the loss they reported in September (interestingly, a big chunk of that loss can be blamed on a huge writedown of their investment in LivingSocial). Prior to that, their P/E was in the 200-300 range - still probably kind of high, but much more reasonable than the figure you quote.
    - outside1234 14y ago
      there's nothing reasonable about a 200 PE unless you think their earnings are going to rebound significantly. think about it - that means that it would take 200 years of earnings to be worth their market cap (not factoring in uncertainty and all that)
    - Tloewald 14y ago
      300 is still 10x reasonable.
jetti 14y ago
> Deals are a win for the customer and the merchant (and Groupon too). Not necessarily, it only would work if you can get repeat customers. There are many groupons that my wife sees that she would never have done if there wasn't a significant discount. These "cherry pickers" are what cause companies to lose money and make a Groupon not worth it. There was a blog/article by a woman who owned a Chicago yoga studio who was told she should do a Groupon. You can see her point of view at http://blog.tulayoga.net/2011/08/why-i-wont-do-groupon.html http://blog.tulayoga.net/2011/08/why-i-wont-do-groupon.html

by neya 14y ago

mrich 14y ago

They seem to have a high acquisition cost for deals. Many merchants have already been burnt by them - they often make a hefty loss, so acquisitions get harder. You could also argue that most of the merchants using Groupon are already businesses on the downturn, so they will only use Groupon once and not see any gain from it since their business was unpopular to begin with, and the only way customers would be somewhat satisfied with the experience is at a price discount the business simply cannot survive on. Perhaps Groupon could do some better segmentation of their users. They must have quite a lot signed up, so why not offer many more deals overall, and each user gets the three deals he is most likely to buy. Also, you take a much smaller portion of the revenue so the business can survive. This way, Groupon would earn more through increased volume (it is kind of unprofessional to send a customer a similar deal six times a month - if I didn't buy it before why waste your reach to show it again to me?) In essence they would be a highly-tailored ad agency getting a small commission on a huge number of sales.

neya 14y ago
>They seem to have a high acquisition cost for deals. Thanks for the reply, I kind of agree with you on that one.
caffeine5150 14y ago
I think part of it is that groupon got started at a time of peak desperation for retailers. They were desperate to try anything. They may still be desperate, but wiser.

suresk 14y ago

I think it comes down to a few factors: 1) Their sales and marketing expenses are incredibly high. 2) I think the kind of deals Groupon does only work for some merchants - those with high margins, new businesses, and those that are really good at upselling once the customer gets in the door. There have been a lot of highly-publicized accounts of merchants who felt like Groupon deals ended up being very bad for them. The big hit the merchant takes sort of limits the amount and frequency of repeat deals. 3) A ton of competitors have sprung up, since there is a fairly low barrier to entry. In addition to some of the nationwide competitors, there are a lot of local companies like newspapers and tv stations that already have good sales networks and have been copying the Groupon model. This increases Groupon's sales costs and probably squeezes their margins since they may have to offer the merchant a bigger cut to compete. I think it's a good concept and by being the most well-known business in the space they have a pretty significant advantage, but I also think it is a challenging market to be in and they are probably still overvalued.

jmilloy 14y ago
It's strange to see both 1 and 3. If the expenses are inherently incredibly high, then there couldn't be a low barrier to entry. Why are groupon's expenses so high, then?
- taybin 14y ago
  Mismanagement can cause 1 as well.
  - VonGuard 14y ago
    Frankly, I think ya'll hit the nail on the side, but not collectively on the head. Take a little from column A, little from column B, and we can see the real problems with Groupon. As one commenter said, they only work for certain merchants with high markup. This is why there's so many Chiropracters and massagers on these deal sites. Trouble is, all those services are once a year kinda things. Thus, you get one massage on Groupon or Amazon or whatever, and then next week they;re hawking another massage, are you gonna get it? Combine this with the fact that Groupon is reknowned for being slow to pay merchants. That's fine if yer paying back Wal-Mart, who has lots of money, but for small businesses that use these services, 3 months waiting for payment can be crippling. Read about Groupon's payment policies. They're assholes. Slow assholes. And finally, none of this was ever proprietary or complex. Groupon had no firewalls or sandbags against competitors, and frankly, the way it treats its client businesses, it was bound to be fucked eventually. My folks have a boutique ad firm in a small town. For the past year, they've gotten calls EVERY DAY from Groupon-like services, or even Groupon aggregators who act as middlemen for these services. It's a hugely growing market but never once has Groupon been at the table for one of these calls. They're being eaten alive.

Torn 14y ago

Don't groupon deals actually hurt a lot of small merchants? I remember reading some articles back in the day about the profit margins for merchants participating in groupon 50%+ off schemes (i.e. slim to negative) and that people would turn generally up to take advantage of offers but not become repeat customers.

digeridoo 14y ago

The loss is tiny and indicates profitability is in sight. GroupOn currently has a market cap of about 1.8B, which seems reasonable for a company that size, though perhaps still a bit on the high side given how low their margins are likely to remain. They went through their childhood years thinking they were going to take over the world, and not too long ago Google offered $6 billion for those dreams. No wonder investors still had some hopes that this was something more than an ordinary business of an ordinary scale. It's not. If anyone would like to keep dreaming, AMZN was running over $300 million losses on a ~$600 million revenue every single quarter around the year 2000.

Tloewald 14y ago
Amazon is still smoke and mirrors. E.g. Current P/E is -- I am not making this up -- slightly under 3000. But, like Milo Minderbinder, they'll make it up on volume.
- suresk 14y ago
  That P/E is somewhat misleading, because it is heavily skewed by the loss they reported in September (interestingly, a big chunk of that loss can be blamed on a huge writedown of their investment in LivingSocial). Prior to that, their P/E was in the 200-300 range - still probably kind of high, but much more reasonable than the figure you quote.
  - outside1234 14y ago
    there's nothing reasonable about a 200 PE unless you think their earnings are going to rebound significantly. think about it - that means that it would take 200 years of earnings to be worth their market cap (not factoring in uncertainty and all that)
  - Tloewald 14y ago
    300 is still 10x reasonable.

jetti 14y ago

> Deals are a win for the customer and the merchant (and Groupon too). Not necessarily, it only would work if you can get repeat customers. There are many groupons that my wife sees that she would never have done if there wasn't a significant discount. These "cherry pickers" are what cause companies to lose money and make a Groupon not worth it. There was a blog/article by a woman who owned a Chicago yoga studio who was told she should do a Groupon. You can see her point of view at http://blog.tulayoga.net/2011/08/why-i-wont-do-groupon.html http://blog.tulayoga.net/2011/08/why-i-wont-do-groupon.html