First off, the GroupOn $GRPN marketing/road show team did an excellent job at using the media to temper/lower expectations on the IPO the past two weeks… 35 million shares @ $20 is a much better pricing than anyone expected when the week began…
I think the folks at Zynga may be breathing a sigh of relief as well since they and many other social media potential IPO’s were worried that GroupOn could sour the juice in that market…
All that aside, I am not a huge fan of GroupOn in 2012 and beyond..
In my observation of Groupon, it’s beginning to skew more toward national deals. That means lower margins as national merchants have the leverage to negotiate a better deal.
While Groupon clearly provides outstanding discounts to consumers at local businesses, the value to the merchant has been hotly debated. An example in the S-1 cites a business that sold Groupons and “more than half of the Groupons were sold to new customers.” That means close to half were sold to existing customers – a roughly 75% revenue hit on existing customers is something that merchants need to figure into their calculations.
GroupOn just got a heavyweight competitor to enter the ring of daily deal market when Google $GOOG announced Google Shopper for iPhone…While Google may be justifiably fearful of Facebook’s reach on search and data mining in the future, GroupOn should be equally fearful of Google and their advantages in local deals for the consumer…
There are lots of things the deal companies can do. But none of them are in their financial interests in the short term.
The core problem is that the interests of GroupOn are opposite to the interests of the business. The deal companies want to sell as many deals as possible to all comers. Not only does this generate more revenue, it’s more operationally efficient. (It’s much easier to write one description for 2,000 coupons than 20 descriptions for deals of 100 each.)
Businesses want a much smaller number of ideal customers.
There’s also a bit of game theory involved. The daily deal sites are dependent on cheapskates for revenue growth. If you make it harder for the cheapskates, they’ll use some other site.
If you look at the mean purchases per user in the Groupon S-1, they’re just below 2 in established markets and a large portion (80%) of registered have never purchased anything. That likely means that a small number of people are buying a lot of deals… exactly what merchants don’t want.Catch me on Fox Business today at 1:30 pm ET breaking down the IPO.