Groupon IPO an Effort to Stop Red Ink?

Online coupon distributor, Groupon, recently filed papers with the SEC to conduct an initial public offering (IPO) to raise $750 million. Having lost $413 million in 2010, the company hasn't proved it can be profitable yet, but don't get too alarmed about that yet. Internet entrepreneurs like Amazon, eBay, Google, Yahoo, and Facebook had some issues in that area at first. One thing we have learned from the past decade of Internet business is that if you get enough people using your service, eventually the money will follow.

That's what Groupon is counting on as we ponder the following details of the IPO:

  • Groupon lost $413 million in 2010.
  • 2010 revenues totaled $713 million.
  • Groupon's first quarter 2011 revenues reached $645 million.
  • Groupon's international business accounted for 37.2%, or $265 million, of the company's total revenues in 2010.
  • In 2010 and the first quarter of 2011, Groupon spent $241.5 million and $179.9 million, respectively, on online marketing initiatives relating to subscriber acquisition.
  • Groupon counts customer acquisition costs as a capital investment. This kind of “hair” on Demand Media's IPO didn't slow that one down, though.

Additionally:

  • Groupon has 83 million email subscribers.
  • Groupon sold 30 million coupons last year and 28 million in the first three months of 2011.
  • Groupon spent $86 million on operating costs in 2010, and $17 million during 2011's first quarter.
  • Groupon has 7,000 employees.
  • Groupon's business grew 2,241% between 2009 and 2010.
  • Andrew Mason's 2011 salary is $575 per year. Last year, it was $180,000. He's sold about $27 million worth of stock.

As Groupon prepares to navigate the sometimes rocky process of SEC approval, co-founder, Andrew Mason, released the following open letter to potential stockholders.

Dear Potential Stockholders,

On the day of this writing, Groupon's over 7,000 employees offered more than 1,000 daily deals to 83 million subscribers across 43 countries and have sold to date over 70 million Groupons. Reaching this scale in about 30 months required a great deal of operating flexibility, dating back to Groupon's founding.

Before Groupon, there was The Point—a website launched in November 2007 after my former employer and one of my co-founders, Eric Lefkofsky, asked me to leave graduate school so we could start a business. The Point is a The webloid, which has spent years spreading false baby bump stories, has decided to speculate that Upton’s “weight gain” means she could be expecting her first child with boyfriend justin-bieber-news.info Verlander. social action platform that lets anyone organize a campaign asking others to give money or take action as a group, but only once a “tipping point” of people agree to participate.

I started The Point to empower the little guy and solve the world's unsolvable problems.

A year later, I started Groupon to get Eric to stop bugging me to find a business model. Groupon, which started as a side project in November 2008, applied The Point's technology to group buying. By January 2009, its popularity soaring, we had fully shifted our attention to Groupon.

I'm writing this letter to provide some insight into how we run Groupon. While we're looking forward to being a public company, we intend to continue operating according to the long-term focused principles that have gotten us to this point. These include:

We aggressively invest in growth.

We spend a lot of money acquiring new subscribers because we can measure the return and believe in the long-term value of the marketplace we're creating. In the past, we've made investments in growth that turned a healthy forecasted quarterly profit into a sizable loss. When we see opportunities to invest in long-term growth, expect that we will pursue them regardless of certain short-term consequences.

We are always reinventing ourselves.

In our early days, each Groupon market featured only one deal per day. The model was built around our limitations: We had a tiny community of customers and merchants.

As we grew, we ran into the opposite problem. Overwhelming demand from merchants, with nine-month waiting lists in some markets, left merchant demand unfilled and contributed to hundreds of Groupon clones springing up around the world. And our customer base grew so large that many of our merchants had an entirely new problem: Struggling with too many customers instead of too few.

To adapt, we increased our investment in technology and released deal targeting, enabling us to feature different deals for different subscribers in the same market based on their personal preferences. In addition to providing a more relevant customer experience, this helped us to manage the flow of customers and opened the Groupon marketplace to more merchants, in turn diminishing a reason for clones to exist.

Today, we are pursuing models of reinvention that would not be possible without the critical mass of customers and merchants we have achieved. Groupon NOW, for example, allows customers to pull deals on demand for immediate redemption, and helps keep merchants bustling throughout the day.
Expect us to make ambitious bets on our future that distract us from our current business. Some bets we'll get right, and others we'll get wrong, but we think it's the only way to continuously build disruptive products.

We are unusual and we like it that way…

At American Monetary Association, we interested in seeing if Mason's team can use the springboard of an IPO to get Groupon headed in the right financial direction. We're not in the habit of predicting business success or failure, but this one is certain to be very…interesting.

The American Monetary Association Team

American Monetary Association

Flickr / Groupon

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