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Technology Stocks : Groupon, Inc. -- Ignore unavailable to you. Want to Upgrade?

To: stockman_scott who wrote (52)	6/28/2011 2:03:34 PM
From: Glenn Petersen	1 Recommendation Respond to of 480

Groupon's Terms Not Endearing By ROLFE WINKLER Wall Street Journal HEARD ON THE STREET JUNE 28, 2011, 11:52 A.M. ET Groupon may be too greedy for its own good. As merchants grow more sophisticated and as more serious competitors like Google enter the daily-deal coupon market, it's questionable whether Groupon can sustain its great payment terms. That's a big issue for investors: Those terms are the key driver of the company's strong cash generation. Each time Groupon sells a voucher to users, it collects cash up front. Merchants' share of the proceeds, which averages about 60% world-wide, is remitted later—sometimes much later. In North America, merchants get paid in installments over 60 days. Internationally, it typically takes 70 days. Collecting payments faster than it cuts checks generated more than $120 million in cash in the first quarter for Groupon, its filings with the Securities and Exchange Commission show. Yet Groupon's net cash from operations was only $18 million. The difference is explained by the extraordinary amount the company spends on marketing and other operating expenses. In other words, the company is using merchants' share of cash to finance growth. For the moment, this looks smart. As long as the business grows quickly, Groupon will take in cash faster than it has to pay it out. It makes sense to invest the surplus since adding scale can help fend off rivals. But as the business matures, growth will slow. At that point, the rate at which cash comes in will more closely match the rate at which it goes out, meaning Groupon will lose its key source of marketing funds. Groupon hopes that eventually it won't need to invest as much in marketing. While there's a long line of merchants anxious to run Groupon promotions, there's a risk that rivals steal merchants from Groupon with more attractive terms. After all, merchants have to run up costs to serve voucher-bearing customers while they wait to get paid. Top competitor LivingSocial pays merchants their full share within 15 days. Upping the ante, Google's new daily deal product will pay out most of merchants' cut within four days, as Business Insider reported recently. Also an issue: how unredeemed vouchers are treated. Consumers generally don't get their money back from unredeemed vouchers. And while Groupon gives U.S. merchants their share of unredeemed vouchers, it keeps all such proceeds abroad. In some countries, LivingSocial also keeps proceeds for unredeemed vouchers but it doesn't for most of Europe. As Groupon prepares to go public, the risk for would-be investors is that Groupon will have to improve its terms to keep merchants on its side. A vicious cycle—lower free cash flow leading to slower growth leading to lower free cash flow—could ensue. It's just another reason daily deals are likely to prove a better bargain for customers than investors. Write to Rolfe Winkler at rolfe.winkler@wsj.com online.wsj.com

To: stockman_scott who wrote (52)	6/29/2011 8:56:34 AM
From: Glenn Petersen	1 Recommendation Respond to of 480

Groupon Cedes Share of Daily Deals to LivingSocial, Yipit Says Groupon's share of online daily deals slipped to 48% in May, from 52% in April, as rivals including LivingSocial closed in on its market lead By Douglas MacMillan Bloomberg BusinessWeek June 29, 2011, 12:49 AM EDT (Bloomberg) — Groupon Inc.’s share of online daily deals slipped to 48 percent in May from 52 percent the previous month, as rivals including LivingSocial.com closed in on its lead in the growing market for discounts offered on the Web. LivingSocial claimed 24 percent of the market, up from 20 percent in April, according to website Yipit Inc., which studied online daily deals in 30 major North American cities. Yipit’s researchers estimate Chicago-based Groupon made $64.7 million in sales in May, more than double Washington-based LivingSocial’s $31.6 million. Online daily deals, a business pioneered by Groupon in 2009, are now delivered by 345 sites and account for about $133 million in revenue in top North American markets, according to Yipit. Groupon’s lead is narrowing as it prepares for a $750 million IPO. “The main reason you’re seeing Groupon’s market share fall is that competition is still on the upswing,” said David Sinsky, data product manager for New York-based Yipit. “Groupon pioneered a brand new space a year and a half ago, and because of their success they have attracted a lot of competition.” Groupon and LivingSocial deliver daily discounts on hotels, restaurants and other goods and services to subscribers on the Web. Closely competing to be third-largest daily deal provider are TravelZoo Inc., BuyWithMe.com and Gilt City, a site owned by Gilt Groupe Inc. 30 Cities Yipit, a site that aggregates deals from over 400 sites, tracked 17,958 discounts offered in May across 30 North American cities including Atlanta, Denver, Miami, New York and Toronto. Its revenue estimates take into account some sites that Yipit doesn’t currently track and says make up about 15 percent of the market. Both Groupon and LivingSocial are making less money per deal than they did before, as the increasing number of deals offered on the Web has caused fewer people to sign up for each one, says Sinsky. “Groupon’s revenue is increasing, but Groupon’s revenue per deal is actually decreasing because they’re putting so many deals a day in front of consumers,” said Sinsky. In May, Groupon increased the number of its deals by 18 percent over the previous month to 4,534 as its average revenue per deal declined 10 percent to $14.3 million. In the same period, LivingSocial increased the number of its deals by 59 percent to 1,932 as its average revenue per deal declined 17 percent to $16.3 million. No Profit Yet Groupon said in June it hasn’t yet turned a profit, even as sales surged 14-fold to $644.7 million last quarter, according to data compiled by Bloomberg. The company had marketing costs of $208.2 million in the period, resulting in a net operating loss of $117 million. Groupon spent $179.9 million on subscriber acquisitions, as it tries to build its lead over LivingSocial. This year, 273 new daily deal sites were started and 112 were shut down, according to Yipit. Julie Mossler, a spokeswoman for Groupon, declined to comment on the Yipit report. Maire Griffin, a spokeswoman for LivingSocial, didn’t return requests for comment. With Ari Levy businessweek.com

To: stockman_scott who wrote (52)	6/29/2011 3:38:31 PM
From: Glenn Petersen	1 Recommendation Read Replies (1) \| Respond to of 480

Why not? LivingSocial Is Talking To Bankers About Going Public At A $15 Billion Valuation By Nicholas Carlson Business Insider Jun. 29, 2011, 3:11 PM LivingSocial is talking to bankers about going public at a $10 billion to $15 billion valuation, CNBC reports. LivingSocial started its life as a Facebook app, but it eventually evolved into the very most successful Groupon clone. Groupon, which filed its S-1 earlier this month, is also planning to IPO soon. It hopes to raise $750 million. The valuation is expected to be around $30 billion. In April, we learned that LivingSocial revenues are expected to reach $1 billion this year. Groupon lost $413 million in 2010 on $713 million revenues. The big challenge facing both Groupon and LivingSocial is a host of competitors – from startups to established players like Google and Facebook. This competition is making it more expensive for both companies to acquire new email subscribers. It's also forcing them to cut better deals for local merchants. Amazon invested $175 million in LivingSocial in December 2010. businessinsider.com

To: stockman_scott who wrote (52)	7/1/2011 10:50:20 PM
From: Glenn Petersen	Respond to of 480

Groupon's financial results pale in comparison to the results posted by Zynga: Compared to Zynga, Groupon is run by a bunch of clowns ByMatthew Lynley GamesBeat July 1, 2011 Social games maker Zynga, the developer behind smash hits like FarmVille and CityVille, filed for an initial public offering on Friday. It is one of the largest initial public offerings expected this year, alongside group-buying site Groupon. But the way the companies are run, and how efficiently they generate money, couldn’t be any more different. Compared to Groupon, which has enormous administrative costs and is hemorrhaging a lot of money, Zynga is a ruthlessly-run, well-oiled machine. The social gaming company has kept its administrative costs to a minimum and, while it hasn’t kept up with Groupon in terms of revenue, has been the most profitable company to file for an initial public offering this year. Zynga has since become a Facebook distribution powerhouse like no other game company. That makes it a lot easier for Zynga to generate revenue, since a percentage of users usually pays for items in otherwise free games. The company has delivered hit after hit to Facebook. Zynga’s latest social game, Empires & Allies, is another hit for the company. It attracted more players than FarmVille, its first breakout hit, in just 25 days. Empires & Allies is gaining new users at a rate of a million a day and 8 million a week now, according to AppData. Here are a few significant differences between two of the most hotly anticipated IPOs this year: Revenue: Groupon brings in much more revenue than Zynga. The group-buying site brought in $713.4 million in 2010. The company brought in $644.7 million in the first quarter this year, up from $44.2 million in the first quarter last year. By comparison, Zynga brought in $598 million in revenue last year and $235 million in revenue in the first quarter this year, up from $101 million in revenue in the same quarter a year earlier. Profit: The biggest difference between the two companies is that Zynga is profitable, while Groupon has lost a lot of money. Zynga made a $90 million profit in 2010. It made a profit of $11.8 million in the first quarter this year, up from $6.4 million in the first quarter of 2010. Groupon has consistently lost money each quarter except for one — the first quarter of 2010, when it brought in an $8 million profit. Groupon lost $456.3 million in 2010 and $6.9 million in 2009. The company lost $146.5 million in the first quarter this year. Marketing Costs: Compared to Groupon, Zynga spends very little on marketing. Groupon spent $263.2 million on marketing in 2010 and $208.2 million in the first quarter this year. Zynga spent $40.2 million on marketing in the first quarter this year and $114 million in 2010. Selling, General and Administrative Costs: Groupon has enormous administrative costs that make up roughly a third of its operating expenses. Groupon spent $233.9 million on administrative costs in 2010. The company has spent $178.9 million on administrative costs in the first quarter this year, compared to $4 million in the first quarter last year. By comparison, Zynga’s administrative costs only make up a fraction of the company’s total costs. The company spent $32.3 million on administrative costs in 2010, or 7 percent of its total costs. Zynga spent $27.1 million on administrative costs in the first quarter this year, or 13 percent of its total costs that quarter, compared to $16.5 million in the first quarter last year. Groupon currently has 661 employees in North America and 2,895 international employees. As of the end of May, Zynga had 2,268 employees. venturebeat.com

To: stockman_scott who wrote (52)	7/5/2011 12:11:47 PM
From: Glenn Petersen	1 Recommendation Respond to of 480

After one month of head-to-head competition in Portland: I believe that they’re striking a better balance between merchant and consumer value than Groupon. The additional restrictions mean that merchants aren’t just selling cash at a substantial discount. Another key differentiator for merchants is more generous payment terms. Google pays out 80% of the merchant’s share in about 4 days and the remainder (subject to chargebacks) in about 90 days. Groupon pays out 1/3 in 5 days, 1/3 in 30 days and 1/3 in 90 days. Google Offers Versus Groupon: The Portland Throwdown By Rocky Agrawal TrechCrunch Jul 4, 2011 Google Offers just finished its first month. Google has been testing its Groupon compete in Portland and I’ve been closely tracking the results. Doing a head-to-head comparison like this is a bit difficult because the two companies run deals differently. Groupon runs multiple deals each day. Many Groupon deals span multiple days, with some running for three days. Google Offers on weekends ran for two days. For each run, I picked a representative deal from Groupon and compared it with the deal from Google. I looked at 24 deals from each company. For these deals, the median deal value for Google was $1,987 compared with $8,900 for Groupon. In its first month, Google grossed $129,000 compared with $331,000 for Groupon. Five of the Google Offers grossed less than $1,000; all of the Groupon offers exceeded this. This is to be expected given Groupon’s longstanding presence in the market; Google hasn’t had the time to build a large subscriber base. Actual Groupon revenue (across all deals) would be significantly higher. “Our Portland trial is going very well for us,” said Eric Rosenblum, director for Google Offers. “Our intention was to start learning how to source great deals, provide excellent merchant and customer service (including phone and email support), and deliver value to our customers, and we are certainly doing that. In terms of our commercial results, the majority of our deals in month one either outperformed or were in-line with our expectations while around a quarter underperformed. Our total units are above where we had projected, but we still need to get better about predicting performance.” One significant difference was the median sale price. Google’s median sale price was $10; Groupon’s was 4 times that at $40. This was the result of Groupon having a higher percentage of services and activities such as rock climbing and screenprinting classes. Cash sells best An area of concern for deal companies is that the deals that generate the most revenue are the ones that are least sustainable for businesses. The most popular deal in the month for Google Offers was an offer for $20 worth of merchandise at Powell’s Books for $10. 5,000 Powell’s vouchers sold out in a matter of hours. Powell’s is a Portland institution and the deal was the equivalent of selling cash for half off; there’s no reason not to buy one. The next day, Google ran an offer for personal training and fitness classes. That deal sold 9 units. The worst performing deal over the course of the month was an acupuncture deal that sold 5 units over 2 days. Google grossed $300 on that deal. Although Google would not comment on specific deals, I expect that the Powell’s deal was heavily subsidized by Google in order to build its mailing list. Rosenblum did say deal subsidies are something they would consider for appropriate merchants. I can’t think of a more appropriate merchant. The worst performing Groupon that I tracked grossed $1,440 and the best performing deal grossed $44,000. Excluding the Powell’s deal, which grossed $50,000, the best Google Offer grossed a bit more than $23,000. The closer a deal is to a cash equivalent for an everyday need, the more it will sell. 3 of the top 5 grossing Google deals were for restaurants; another was for 62% off GoKart racing. (That was the one deal that outperformed my expectations.) Deals like dentists, guitar lessons and medical services (one Groupon offer for a breast exam sold 12 units) are more sustainable for businesses but are low frequency activities. Groupon has a large enough mailing list that it can still generate significant revenue off deals that are sustainable for businesses. But it also means that they will have to keep growing their list rapidly as people tire of such deals. Offer restrictions Google Offers generally had more restrictions than offers on Groupon. While this may sound like a bad thing, I believe it’s better for the ecosystem long term. An offer for Le Bistro Montage restricted the deal to weekend brunch. This is a new product offering for the restaurant, so it serves to expand awareness versus potentially displacing existing business. An offer for a Mediterranean cafe wasn’t valid for lunch. A deal for a barber shop was “valid only for barbers Brian or Jennifer.” In at least one case, I thought the restrictions went overboard. Here are some of the restrictions for a deal at an Italian restaurant: Reservations required and subject to availability. 24-hour cancellation policy applies or you’ll forfeit your voucher. Not valid during holidays, on happy hour prices or at the Jade Lounge. Must mention Google Offers when making reservations. Although the intent is to smooth demand, these are unusual restrictions and I worry they could create a bad customer-service dynamic as consumers who purchase the deals and don’t read the fine print try to redeem them. The final deal of the month didn’t get a lot of traction because of its low value. It offered $6 worth of Vietnamese food for $3. The description noted that a small bowl of pho is $6.50, large is $7.50. For a deal seeker, that’s an unattractive deal because they would have to pay additional cash out of pocket. For many consumers, prepurchasing a voucher to save $3 hardly seems worth it. Sales process A common complaint about Groupon from merchants is that they weren’t made aware that they could cap a deal or that a cap was ignored. We published an email from a former Groupon employee who stated that some salespeople low-balled volume estimates to get merchants to run deals uncapped. The feedback I’ve received from merchants about Google Offers in Portland indicates that Google sales tries to ensure that the deal structure is suitable to the business’s needs. (But then again, this was the launch of the service, so you’d expect Google to be extra vigilant). One merchant mentioned that Google asked if she wanted to restrict the deal to new customers only. (She opted not to.) Another merchant told me that while she wouldn’t consider running a Groupon, she was considering a run with Google Offers. She liked having the flexibility to restrict the offer to just breakfast, a time when most people aren’t aware that they’re open. One complaint about Google Offers that was reported by Business Insider is that Google sales reps have implied that running an offer would make them #1 in Google search results. Google spokeswoman Jeannie Hornung said, “We have a training process in place for sales people that has made and continues to make it very clear that Offers has nothing to do with search. As we said before there was clearly a misunderstanding.” I believe that Google won’t let Offers influence search results. I’m equally certain that when you build a large sales organization, some people will try to close deals by implying things that aren’t true. Google’s reputation in search is too important to damage. Any perception of such tying would also raise antitrust concerns. Google would be well served to make it very clear in its merchant help center and its merchant agreement that search results are not helped by running an offer. If it were my product, I would have merchants specifically acknowledge that they understand that Offers doesn’t generate an SEO benefit. Conclusion It’s still the early days of the daily deal business and Google has put out a very credible beta in Portland. Thirty days in, I stand by my claim that there’s not much that is original here. I believe that they’re striking a better balance between merchant and consumer value than Groupon. The additional restrictions mean that merchants aren’t just selling cash at a substantial discount. Another key differentiator for merchants is more generous payment terms. Google pays out 80% of the merchant’s share in about 4 days and the remainder (subject to chargebacks) in about 90 days. Groupon pays out 1/3 in 5 days, 1/3 in 30 days and 1/3 in 90 days. That should make for some interesting competition as Google’s product matures and it rolls out in more cities. Up next: New York and San Francisco. Clarification: In an earlier post I noted that Google held consumers responsible if a merchant went out of business. This was based on Google’s posted terms of service. Google has since told me that the wording was unclear and meant the opposite of what they intended. “Google’s intention is to refund money to all consumers who purchased a voucher from a merchant that has gone out of business,” Hornung said. “We are redrafting clearer language now which we can share when it’s published.” Share your daily deal experiences — dailydeals@agrawals.org. techcrunch.com