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Taking Stock Of Groupon Following Its IPO

Posted on Wednesday, Nov 16th 2011

Within North America, there are more than 650 daily deal providers from whom more than 26 million users have bought deals. With an 88% user share, Groupon is the market leader in the segment. Analysts expect the U.S. daily deals market to pick up during the holiday season after a slump over the summer. Domestic daily deals market fell 7% sequentially in July but has been growing since to report 9% sequential growth in August and 12% growth in September. By revenue, Groupon commanded 54% of the U.S. daily deals market, followed by Living Social at 22%.  Recently, Groupon’s long-awaited IPO also hit the market and was the largest offering by a U.S. Internet company since Google’s in 2004. Priced at $20 per share, the IPO was to raise $700 million for the daily deals leader. The list price was, however, lower than the market’s anticipated $25 per share.

Groupon’s Financials
Groupon’s (NASDAQ:GRPN) Q3 revenues grew fivefold over the year but only 10% sequentially to $430 million. Groupon is now present in 45 countries around the world and 175 cities in North America and has a database of more than 79,000 merchants and 143 million subscribers. But Groupon’s growth rates are no longer as impressive. At 72% in the first quarter this year, growth fell to 33% in the second quarter and to 10% in the third quarter.  Average gross billings per subscriber in Chicago, Groupon’s home city, also fell significantly from $61 in 2009 to $22 in 2010 and $14 in the most recent quarter.

Operating income for the quarter reported a loss of $5 million last quarter. Operating income from North America showed significant improvement from the previous quarter’s loss of $11 million to a profit of $19 million.

Groupon’s Deal Expansion
Groupon is counting on making it big in the holiday season this year. As in 2010, they launched Grouponicious for the holiday season this year. However, unlike last year’s 15 cities, this year, Grouponicious will cover 41 cities in the U.S. and Canada. Groupon is also improving the deal appeal by launching Epic Deals, specific experiences such as around-the-world trips, cooking classes, and group dinners with celebrities.

Additionally, as part of their vertical expansion, Groupon recently launched Groupon Goods, a discounted online retail store. Groupon Goods has offers on electronics such as LED TVs and coffee brewers, to name a few.

To further improve user engagement, Groupon announced a loyalty program, Groupon Rewards. The Rewards program has initially been launched in Chicago and Philadelphia and will help users earn rewards at participating merchants and use them to purchase a special Groupon from that merchant.

Groupon’s expanding offerings will help them retain their user base. According to a Forrester survey, within the deals market, 47% of flash sale subscribers and 36% of daily deal voucher subscribers have never purchased a daily deal offering. Twenty-nine percent of daily deal users have even unsubscribed because of the volume of e-mails selling deals they find unappealing. Groupon will be trying to counter that trend through these expanding services.

Meanwhile, the stock is trading at $24.07 after having touched a high of $31.14 shortly after listing. Market cap is $15.35 billion.

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