Groupon hits home with consumers, businesses
Since its launch in 2008, Groupon Inc. has gone from improbable success story to the country”™s largest online coupon provider and after filing for an initial public offering could be looking at a valuation of at least $20 billion.
Enticing consumers worldwide with “half-off” offers on everything from trips to medical procedures to concert tickets, one analyst says it”™s no wonder that the Chicago-based company has demonstrated such explosive growth, despite racking up $540 million in operating losses since 2008.
“If you just look at the numbers of customers, the growth, it”™s unbelievable, and that”™s why it has this astounding value,” said Howard Davidowitz, chairman of Davidowitz and Associates Inc., a national retail consulting and investment banking firm based in New York City. “Forget the profit and loss ”“ when it comes to people using it and the new people and the growth, that looks astounding.”
Groupon, which launched in November 2008 and is now available in more than 500 markets and thousands of cities around the world, is the largest online coupon provider in the U.S.
The company offers consumers daily deals on restaurants, travel packages and a number of other products and services. These deals, which often represent a discount of 50 percent or more, are specific to the region or city selected by each visitor to the company”™s Web page.
In order to make the transaction worthwhile for the merchants that work with Groupon, the company promises a minimum number of sales and will only execute the deal if that mark is reached. Groupon profits by taking a percentage off of all successful deals, but takes in nothing from deals that do not hit the minimum sales mark.
Sales have exploded thus far in 2011, with $664.7 million in sales in the first quarter. Now with 83.1 million subscribers ”“ up from just 3.4 million a year ago ”“ the company is ready to go public.
On June 2nd, Groupon filed for an initial public offering, in which it said it hopes to raise at least $750 million, which could equate to a valuation if $20 billion or more.
Critics have said that this current valuation is unreasonable.
“There is no rational math that could possibly get anyone to the valuation Groupon thinks it deserves,” Sucharita Mulpuru, vice president and principle analyst at Forrester Research Inc., stated in an open letter to potential investors.
However, Davidowitz said that potential investors are more focused on the future potential of Groupon than the company”™s current losses.
“The degree of interest is tremendous and that”™s why the company has been attributed this giant value,” Davidowitz said. “People are looking to the future and saying, ”˜This thing is incredible.”™”
He noted that for roughly 80 percent of Americans, these Web coupons represent a can”™t-miss opportunity.
“At the end of the day, anybody who can give them some sort of a deal is going to have a huge leg up because the consumer is looking to save every dollar,” Davidowitz said.
Companies in Fairfield County are taking advantage. Last week, a deal was posted for New Canaan Ski and Sport that cost $50 for $100 worth of gear. Over 300 vouchers were bought within the first two days of its posting.
“Groupon is a very good service for small businesses like us,” said Gio Alberino, owner and manager of New Canaan Ski and Sport”™s Ridgefield store. He said that Groupon was also helping to bring in an entirely new customer base.
Other businesses that have used Groupon include Bambou Asian Tapas and Bar in Greenwich, which offered a $50 voucher for just $25; Stone-Age Rock Gym in Manchester, which offered a $135 voucher for a guided rock-climbing trip for two that was valued at $270; and The Big Apple Circus, which offered tickets to its upcoming performances in Stamford for $25, down from the marked price of $45.
The circus first used Groupon as a marketing and sales tool for its Boston shows this past spring and decided to use the service again for its upcoming Stamford performances. This time around, the coupon sold out just hours after being posted after 500 tickets were bought.
“They”™re very much top-of-mind,” said Christine Pottinger, marketing director for the circus, which is a not-for-profit organization. “(We”™re) hitting people who are more price-sensitive.” She said that the circus would “absolutely” continue to use Groupon for its future performances.