Many suggestions and analysis on Groupon’s IPO filing. Interesting points, and I think they hit many of the key questions that any knowledgeable person reading the S1 should have. Lets look at it from 3 different perspectives a) potential investor b) customer and c) merchant.
First, I predict Groupon’s IPO will be great to awesome. They will be easily oversubscribed and may even get a decent 50-60% pop when they list.
1. Groupon will be going on a roadshow and will give institutional investors a clear picture of their business. Many of the things they will say will be what they mentioned in the S1, but they will have a lot more other metrics and perspectives which companies dont share in the S1 filing. The institutional investors looking to make money have few other options right now. There’s a supply constraint on good growth companies. Groupon is a good option. Retail investors dont matter a whole lot when the IPO is out.
2. Customers may get “deal fatigue” as much as they get fatigue from going to cut their hair every 3-4 weeks or going out to eat daily. E.g. Of the 83 Million Groupon email subscribers, approx 3-4 million are in SF. The average # of groupon’s sold is 494 per deal, so the conversion rate required is hardly something to get worried about. I dont know anyone that does not like 50% off something they are going to need anyway.
3. Groupon does not make sense for many merchants. Especially those that sell products or those who dont have perishable services with high fixed costs. Ask the airlines. After they load the plane with the min number of people to break even on the flight, every other passenger on the plane is profit. They have fixed costs of running the plane, which includes fuel, crew etc. If the plane leaves the airport and is 50% full, that means 50% seats have no revenue opportunity. Even getting $1 on those seats is better than no revenue.
Finally I believe Groupon is right to invest in the future and build solid “moats” around their business. There’s not much of a barrier to entry right now, but with the right investment, it could be very difficult for any competitor to hire, manage and build a salesforce that’s as large as Groupon’s as an example.
The short term loss in profit is a temporary blip. As Amazon.