Groupon is worth $5B, but its future is not local commerce
Is Groupon worth $5billion?
That is the figure that the Financial Times was suggesting this weekend.
So what do we know about the business? 35 million users in 300 markets such as Boston, Washington, etc.
So what do we know about the business? Well besides the numbers in the FT there are much better numbers in the comScore blog.
35 million users in 300 markets such as Boston, Washington, etc. Revenue of $2 billion in two years.
Groupon claims that they have sold 16 million deals and saved $730 million.
So that is an average “saving” of $45 a deal. That does not match the $10 to $30 range that comScore suggests and I agree with . I guess this means that when someone buys they actually buy several coupons from the same vendor.
So lets say two coupons per deal per person on average. That makes 32 million coupons and $23 a coupon in savings.
If the average discount is still 60% I would be surprised – they seem to be all 50%.
If Groupon makes 50% of the revenue that means around $11 per coupon
So that means $730millon in revenue to Groupon, which does not match with the $2billion in revenue.
What I really think is going on is amazingly growth. As comScore reports in October 2010 6.4 million people visited Groupon.com, up 657% from 894,000 a year ago.
Six hundred percent growth for another year would put them at over 200 million people.
Is that likely? Well Facebook is at 500 million and valuation of $33billion, and Twitter is at 190 million and a valuation of $4billion.
But Groupon has a real robust revenue model, which is more than most can say.
So is this defendable?
I think the answer is a surprising yes, even if the margins shrink alot. Because if someone is going to sign up for a local deal (Groupon, BuyWithMe, SocialLiving) then it makes most sense to first sign up with the best known.
Could Google compete? Well only if they break their search model and promote their own service above all others irrespective of the reality, and even that is not certain. Paid Ads won’t catch up with a social growth driven company.
The equation is not the same for the local vendors. Groupon wants them to promote a lot of coupons and that can be killing for a small vendor that has a real Cost of Goods (COGs) sold. So Groupon has a real problem finding good deals. It becomes much easier to strike a deal with a chain – or even better a vendor with a near zero such as a online company.
So Groupon is going to end up having to move away from the small local vendor in order to fuel their growth.
Ironic really.
