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Groupon Delays IPO

Groupon Reevaluating IPO Plans due to Market Volatility

I subscribe to Groupon, Livingsocial, Gilt Groupe, Gilt City and Savored (nee VillageVines).  These e-mail services account for roughly 10-25% of my daily e-mails.  I have, at this point, received 646 e-mails from Groupon, 180 from Livingsocial, 695 from Gilt Groupe, 181 from Gilt City and 121 from VillageVines/Savored (which, as I understand it, has actually been acquired by Groupon).  That’s 1,823 e-mails.

I have bought approximately five of these coupons.  That’s a hit rate of about one quarter of one percent.

I keep subscribing to these e-mails because 1) I’m too lazy to unsubscribe from mailing lists (I bought Godiva chocolates online for Valentine’s day and they have deemed it necessary to e-mail me every day…I want to unsubscribe but it’s easier to ignore it and let my inbox balloon to 10k unread messages) and 2) I’m hopeful that one day I’ll get an e-mail that reads “50% off Liquor at all Liquor Stores for Life.”  I’ll probably have to keep waiting.

Even though most of the Groupon etc offers aren’t that good – I was recently offered up to 60% off on a Brazilian wax and over 80% off a 1-hour glamor photo shoot (I guess most daily deal buyers are vain?  Or women?  Is that redundant?) – these companies are selling billions upon billions of dollars worth of these coupons a year.  Awesome!  But they’re not making any money.  Huh?

Citing market volatility as a reason for delaying the IPO is a convenient face saving measure for the company, who came in hot recently by filing for an IPO valued at nearly $30 billion.  The financial blogosphere quickly got to work analyzing the company’s S-1 and found that they were using creative account to obscure the fact that they were burning through cash quicker than they were bringing it in.  To be fair, most of this was due to the ridiculous growth the company was experiencing: both organic and acquisitive.  So the theory is that if Groupon can maintain the top line its achieved while shedding growth-oriented costs, the company will be massively profitable.

The problem I have with this is that I don’t think the top line is sustainable.  Part of this is experiential: I’m solipsistic and assume that since I don’t actually buy any of these coupons (maybe some young New Yorkers are interested in discounted monthly parking – I’m not) then nobody must buy them.

The other part is theoretical: a business like this can’t be sustained because Groupon’s and the merchants’ interests are inherently out of alignment.  The Groupon pitch goes like this:  Groupon approaches a business and tells them that it can bring in hundreds, if not thousands, of new customers.  The company basically sells its product for 50%, gives Groupon half of the remainder and, voila, the company will have reached a brand new audience.  Aside from the devastating financial impact this can have (a Google search for “Groupon horror stories” is instructive), this theory of new customer acquisition generally doesn’t bear out, because the people most likely to buy your coupon are the people who typically use coupons all the time.  They’re not going to come back to your shop if they have to pay full price.

Lately, a lot of the Groupons I’ve been getting have been for restaurants, which is more up my alley than bikini waxes or photo shoots.  If Groupon ever e-mails me promising 50% off Daniel or Le Bernardin I am all over it.  But when Groupon proposes 60% off 3-star-on-Yelp Sushi?  That’s not going to work for me.  Even if it did, there’s an inherent conflict of interest between Groupon and the restaurant: the restaurant wants to gain new, full-paying customers, but Groupon wants to sell more coupons.  Like most young New Yorkers, I like going out to dinner but I don’t do it very often.  If I find that Groupon is a good way to save money at restaurants, why would I ever become a full-paying customer anywhere except for the places good enough that I wouldn’t need a Groupon to entice me?

Maybe I’ll be wrong on this and the daily deal market will continue to flourish.  I think I won’t be.

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