CEO's Naked Yoga Video Aside, Is Groupon Approaching Its Endgame?
If Groupon is approaching its endgame -- and its financials suggest that, barring drastic action, it is -- then it may be the YouTube video of Groupon CEO Andrew Mason performing yoga in his underwear in front of a Christmas tree that everyone remembers as the key moment when they knew the daily deal site was over:
Consider the frost that has alighted on Groupon and the daily deal space this summer:
- Groupon's traffic is down 50 percent.
- It has been sued for advertising coupons for tours of Alcatraz that allegedly don't exist.
- The company's PR person quit following the "leak" of a memo from Mason that may have broken SEC regulations.
- The company was required to officially deny that it would become "wildly profitable," as its chairman once told Bloomberg.
- Competition in the daily deal category is crowded (the latest entry: Gaypon, which does what you think it does).
- Facebook has exited the business after failing to find enough money there.
- Yelp has dialed back its deal efforts.
- And sales growth at the company has entered a sharp slowdown period.
Eventually, we'll ramp down marketing just as fast as we ramped it up.He also says that he realizes Groupon cannot go on finding new customers forever. Eventually it will reach a ceiling:
So our customer acquisition spend drops severely to reflect the fact that eventually we'll run out of people we can add to our email list.Here's a chart that illustrates just how quickly that ceiling is approaching. It shows the percentage growth in Groupon's revenues quarter to quarter from the beginning of 2009. While Groupon is still putting up big revenue numbers, those numbers are getting flatter and flatter as time goes by:
At a normal company that would not be a problem. As Mason notes, as long as he can reduce costs Groupon could become profitable. The problem is that this means a fundamental restructuring of Groupon's business model: Currently, the only reason the company "makes" money is because it functions like a Ponzi scheme -- it is able to pay its suppliers and merchants a long time after it takes in money from customers. It doesn't actually make a profit.
In the endgame, with no revenue growth, Groupon will no longer be able to rely on delaying payments to make money. It must actually cut its operating costs. Note that Mason said marketing would be cut by 20 percent. That turns out to be much less than the across-the-board cut in all Groupon's operating expenses that would have been required to make the company show an operating profit in the first half of this year -- 26 percent.
Mason, apparently, believes he still has the luxury of time before he really begins to wield the ax.
Related: