Groupon States Its Case
In an unusual letter to potential stockholders in its IPO filing, Andrew Mason, Groupon’s chief executive officer, listed five "long-term focused principles" that have guided and will continue to guide the daily deal coupon provider’s growth.
1) We aggressively invest in growth: Subscriber-acquisition costs of $241.5 million in the first quarter helped drive worldwide subscribers to 83.1 million as of March 31 from 3.4 million a year ago, but also led to a loss of $102.7 million on sales of $644.7 million in the quarter. Wrote Mr. Mason. "When we see opportunities to invest in long-term growth, expect that we will pursue them regardless of certain short-term consequences."
2) We are always reinventing ourselves: After its initial focus on one deal per day led to nine-month waiting lists for merchants in some markets, minions of Groupon clones, and "too many customers" for deals, Groupon released deal targeting, enabling different deals for different subscribers in the same market based on their personal preferences. Groupon NOW, which rolled out last week in San Francisco and New York, gives subscribers hours to both buy the deal and cash it in. Wrote Mr. Mason, "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."
3) We are unusual and we like it that way: Examples included fire dancing classes and a marketing campaign, such as Grouspawn, which awards college scholarships to babies whose parents used a Groupon on their first date. Wrote Mason, "While weighted toward the measurable, our decision-making process also considers what we feel in our gut to be great for our customers and merchants, even if it can’t be quantified over a short time horizon."
4) Our customers and merchants are all we care about: This includes an open refund policy, a "sophisticated, multi-stage process" for picking deals and "vigorously fact-checked" editorial content. Wrote Mason, "We believe that when once-great companies fall, they don’t lose to competitors, they lose to themselves — and that happens when they stop focusing on making people happy."
5) We don’t measure ourselves in conventional ways: Gross profit is seen as "the best proxy for the value we’re creating." Second, free cash flow is measured as an indication of long-term financial stability. Third, income before subscriber acquisition costs is viewed as "operating profitability before marketing costs incurred for long-term growth."
Mr. Mason concluded, "If you’re thinking about investing, hopefully it’s because, like me, you believe that Groupon is better positioned than any company in history to reshape local commerce. The speed of our growth reflects the enormous opportunity before us to create a more efficient local marketplace. As with any business in a 30-month-old industry, the path to success will have twists and turns, moments of brilliance and other moments of sheer stupidity. Knowing that this will at times be a bumpy ride, we thank you for considering joining us."
- Groupon’s S1 filing – Securities & Exchange Commission
- Groupon IPO: 3 Reasons to Worry – The Wall Street Journal
- Groupon IPO: It’s Here! – The Wall Street Journal
- Groupon’s $540 Million in Losses May Leave Investors Leery of Share Sale – Bloomberg News
- Groupon: From The Ashes Of A Dead Startup To A Billion-Dollar Company In 2 Years – San Francisco Chronicle
Discussion Question: What do you think of Groupon’s long-term strategy, core principles and growth potential?