This week Groupon kicked off their roadshow in hopes of winning over investors for a successful IPO (initial public offering) which they need to help smooth out the turbulent waters they've been sailing through. So far they've been battling a plethora of negative publicity in the media, class action lawsuits and now they're pushing for a successful IPO at a time when the markets are in bad shape.
The presentation focuses on the untapped potential there is in local markets, how Groupon will take advantage and the financial rewards for the company in the future. CEO Andrew Mason asserted that their new platform's potential is in the trillions of dollars and that it provides consumers with twice the buying power and increased profits for merchants.
The driving force behind those claims is their "Triforce: The Foundation of Groupon" (yes, it is an intentional The Legend of Zelda reference). The basis for which is their proprietary Smart Deals system which they refer to as "the deal factory." Smart Deals is how they get the right deals in front of the correct consumers and how they tailor the type of deals in accordance to the preferences of their merchants' customers. They also claim this allows them to drive up conversion rates which translates into happier customers and increased loyalty. The Smart Deals system is fed by their lead optimizer which fuels the sales team to keep the deal factory growing. The final part of the trifecta is a new service called Groupon Now. It focuses on allowing Groupon users to get real time Groupon deals from merchants on their mobile devices as they are out and about in a particular area. Mason summarizes all this as follows, Daily Deals (customer acquisition), Groupon rewards (loyalty and retention) and Groupon Now (yield management).
Their CFO, Jason Child, tried to communicate a bright financial future despite some difficult circumstances surrounding them in the present. Find out more and watch a video of their roadshow presentation after the break.
The points that Child was trying to drive home are that their initial investments placed into growing their customer and merchant base were necessary to set them up for success and that they have experience record growth, high ROI (return on investment) and their bottom line has improved greatly. For example, Child stated that they spent $800 million on marketing over the past 4 quarters which amassed almost 8 million subscribers and 30 million customers. They also claim to have shrunk marking expenses to 40% of revenue from 78% in Q1 2011 because they have reached a critical tipping point in the sheer size of their customer and merchant base. Their gross billings, the total amount of revenue collected, has grown 496% year over year to approximately $1.2 billion and revenue, what they keep after paying merchant partners, has grown 426% year over year to approximately $400 million. In Q4 2010 Groupon suffered a lost of $143 million and decreased to a loss of $2 million in Q3 2011.
If that's is all true, then things seem to be on the up for Groupon, but the reason for this dog and pony show is that Groupon stands on the verge of becoming insolvent. Their balance sheet shows them with liabilities greater than assets by $300 million plus. From last quarter to this quarter their merchant liabilities increased 19% from $392 to $467 million. Trust is a key issue here. Their merchants have to believe that Groupon can deliver monetarily because they take on a lot of risk by offering goods and services at a 50% discount and possibly having to honor them even if Groupon does not. Creditors have to trust that Groupon can deliver on their promises as well. If they start to withhold credit or start eating into revenue in an effort to recoup, the house of cards Groupon is living in would topple over. My opinion is that Groupon will probably be able to raise enough capital with this presentation to smooth things over a little, but what do you think? Let us know in the comments section.