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October 24, 2011

Is The Groupon Story Going Bust ?

 Groupon almost broke even for the quarter, a huge change compared to the last year and a half. Operating income benefitted from a couple of one-time gains,

The reason revenue grew faster than the number of Groupons sold, meanwhile, is that revenue per Groupon increased

The number of coupons Groupon sold flattened in Q3. This contributed to the revenue slowdown.

The reason  Groupon Revenue grew more slowly than "Gross Billings" is that Groupon's "take rate" fell. (The "take rate" is the percentage of coupon sales that Groupon keeps.) Groupon says the take-rate fell because its product mix changed

Revenue," the portion of coupon sales that Groupon keeps, also grew, but much more slowly: Revenue increased 10% to $430 million.

Groupon's North American business is now nicely profitable, earning $19 million in adjusted operating income in Q3, a 12% margin

Market Opportunity For Daily Deal Sites

Only a few months ago, Groupon was the Internet's next great thing. Business media christened it the fastest growing company ever. Copycats proliferated. And investors salivated over the prospect of Groupon going public.

However Today The Groupon Story has turned upside down.. showing once again how fast  Internet Economy can  change and how little time it takes for a “  product  life cycles across the Internet  to  go bust …

 The start up  Daily Deal’s  Pioneer’s   expectations for the IPO that in June was valued as high as $25 billion has now sunk to   a valuation of  that is less than half that at between $10.1 billion and $11.4 billion  

Now Groupon faces concerns about the viability of its daily deals business model. The novelty of online coupons is wearing off. Some merchants are complaining that they are losing money — and customers— on the deals. And competitors are swarming the marketplace with offers and deals that makes  very  little  economic sense

"Groupon is a disaster," says Sucharita Mulpuru, a Forrester Research analyst. "It's a shill that's going to be exposed pretty soon."

Groupon shows what can happen when a startup experiences steroidal growth in an unproven industry.  Coupled  with that is  ; hordes of venture funds” who suddenly saw the next Big Amazon “ or the next “Ebay in Groupon .. In one way Groupon  is an emblematic of a business in infancy. According to  Investors   who tracks Daily Deals, “Groupon is facing are symptomatic of something more troubling: questionable accounting, an overvalued business model and an industry that is turning into the digital equivalent of junk mail”

The reason Groupon reached break-even is that it cut back sharply on marketing costs. Although the company's marketing efficiency improved (cost-per-new-customer dropped), Groupon also added fewer customers than it has in prior quarters. This, in turn, led to a slowdown in the company's revenue growth rate, especially in the North American business.