15 November 2011 at 9:13 GMT
When investors think of IT/Internet/New Era stocks there is a tendency to think huge “scale” profits just around the corner and high margins as the stuff is just digital. Groupon is not digital it is at most a hybrid!
We have to disappoint you – no scale!
Groupon has provided a massive amount of numbers in its initial public offering (IPO) prospectus and stacking them up provides some interesting insight. In table 1 we have collated the numbers from Q2-2009 and Q3-2011 i.e. more or less the first two years of the company’s existence.
The growth in numbers is stunning but in more than one sense. The number of locations in North America has risen from 5 to 175, representing a 35-fold increase. Groupon is moving abroad fast and is now represented in 45 countries, versus just North America in the beginning.
What is most stunning however is the amount of employees! From a mere 35 in the beginning to 10,418 now, an increase of 282 times during this short period. This number is amazing and tells us clearly that Groupon is not a digital story where earnings just flow out of the cable, so to speak!
Groupon business
Groupon has to know a lot about the locations it operates in to be able to create the best possible offers to engage with potential customers. Such knowledge means staff need to be present at their local premises which means expenses and declining productivity.
Revenue per employee has risen 27 percent, so there has been some progress, but this major ramp-up should have provided more.
Conclusion
Look out for more on these numbers going forward. Maybe Groupon will do better, but don’t mistake Groupon for a mega earner with high margins – this will probably not happen. That said, the valuation at its IPO recently indicates Groupon is viewed as a different animal than it is. Groupon is just a 'glocal' facilitator of discounted goods and services - not much fancy IT in this.
For more analysis of Groupon read:
Groupon - the client guessing game.