Foursquare: Any Money Behind the Hype?

According to market reports, geoolocation advertising will be a high-growth area through 2015. At present, less than half mobile ad networks use location based advertising. Geolocation-based advertising not only includes display advertising, but it is also evolving into coupon- or deal-based advertising. New York–based Foursquare is a big name in geolocation services. Here is a quick look on how they have fared in the market.

Foursquare’s Offerings
Foursquare was initially founded to become a social media site that can be used to tell friends about places that a user has “checked in” to. Today, it is a site that goes beyond bookmarking places of interest to a site that shows personalized recommendations and shares friend’s comments as well. Last year, Foursquare also added a local Yelp-like review service to its listings. Users are now able to rate the business they checked in to.

As of earlier this year, Foursquare boasted more than 33 million users accessing its site globally. It had more than 3 billion check-ins worldwide and was clocking over a million check-ins every day. Besides an active user community, Foursquare also has an established merchant base. As of January 2013, over a million merchants were using their service to build customer engagement and to attract more business.

Foursquare’s Financials
Fourquare is largely venture funded with investment of $112 million from individuals and venture investors that include Union Square Ventures, O’Reilly AlphaTech Ventures, Andreessen Horowitz, SV Angel, Spark Capital, CrunchFund, and Silver Lake Partners. An earlier round of funding held last year had pegged its valuation at $760 million valuation. Earlier this April, Foursquare also raised $41 million in debt from Silver Lake Waterman.

Despite the big following, Foursquare is still struggling with monetization opportunities. It relies mostly on advertising and have a three-tier pricing model focused on small, medium and big sized businesses, respectively. Last year, it also added premium features such as Promoted Updates that highlight local business deals to users based on location, check-in history, and friends’ recommendations. Foursquare earns revenues when users check into client business or accept their business promotion.

Foursquare’s financials are largely unknown, but analysts estimate that it reported revenues of $2 million last year. Foursquare doesn’t seem too worried about such low revenue figures. In a recent interview, co-founder and CEO, Dennis Crowley, claims that monetization is not a problem for Foursquare. While he remained silent on revenue projections for the current year, he did say that the company was “signing six-figure deals with national merchants.” Foursquare is convinced that its expanding merchant tool offerings will help it continue to build revenues.

To me, revenues like that hardly justify a $760 million valuation.