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Groupon’s Strikeouts Reveal an Unspoken Truth

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Re: Groupon’s Strikeouts Reveal an Unspoken Truth

#21

Post by sawyer »

Here's an example of a public company using a non-GAAP measurement that makes a little more sense:

For the last few years EA has been including deferred net revenue as the largest item in their non-GAAP numbers. This value reflects the estimated revenue from ongoing online sales of digital goods over the expected lifetime of an online game.

Example: http://investor.ea.com/releasedetail.cfm?ReleaseID=594196 (note the detail they go into as to why they're including the non-GAAP items towards the middle of the release for contrast with Groupon)

Re: Groupon’s Strikeouts Reveal an Unspoken Truth

#22

Post by megamark16 »

So...I'm developing a web application, and once it's built I won't have to spend nearly as much money on development costs as I am right now. Even though the majority of my expenses are development costs, if I exclude those costs from my balance sheet then my net profit is through the roof! INVEST IN ME, I'M SUPER PROFITABLE! (according to Groupon accounting practices)

Re: Groupon’s Strikeouts Reveal an Unspoken Truth

#23

Post by joelhaasnoot »

jeremymims wrote: post #9

Groupon has more than 100 million subscribers (mostly in America). If we assume that the total available market is another 50 million or so signups in the US, then these loss leader marketing expenses will drop dramatically (no need to offer $10 for a friend that buys a $5 deal). The attempt of this metric is to explain what their business looks like in another year or so when they've reached some level market satura…

I'm not so sure... Their model is one that throws all deals on to one big pile for a geographic region and they're trying to get newsletter subscribers. Eventually that's not going to interest consumers anymore (there will always be some bargain hunters, but that market is relatively small). They're going to have to add some sort of element to distinguish what you could be interested in to be interesting and competitive. I should be able to say: "I like Chinese, and don't want to spend more than $40 on a nice meal" and get ads that match. They'll need marketing muscle to make that interesting too. I don't subscribe to Groupon because it's all junk I don't wanna buy. Or maybe I just don't have enough expendable income?

Re: Groupon’s Strikeouts Reveal an Unspoken Truth

#24

Post by raganwald »

jeremymims wrote: post #9

Groupon has more than 100 million subscribers (mostly in America). If we assume that the total available market is another 50 million or so signups in the US, then these loss leader marketing expenses will drop dramatically (no need to offer $10 for a friend that buys a $5 deal). The attempt of this metric is to explain what their business looks like in another year or so when they've reached some level market satura…

it's insane not to see that marketing expenses will drop and that they can be comfortably profitable.

Look, projections based on assumptions are part of the investing game. And while I appreciate your enthusiasm, the likelihood that you are correct is not the point.

The point is, there is already an existing method of disclosing assumptions and projections for the future, it's called a pro-forma financial statement. Groupon can simply state their assumptions for when their customer acquisition expenses will go away and give us their projection for what they think their financials will look like at that point in time. In the time-honored format that has served many companies before them.

Giving us a new number for what their business looks like now is ridiculous, because there already is a standard way to share their hopes and dreams of what their company will look like in the future. And that has nothing to do with what you or I might think of their assumptions about what might happen in the future.

Re: Groupon’s Strikeouts Reveal an Unspoken Truth

#25

Post by dodo53 »

raganwald wrote: post #11
dodo53 wrote: post #6

I don't really get why it's a big deal. They have to report the normal net loss, and the amount and categories of things they're excluding is public knowledge so why does it matter if they decide to come up with a possibly not-useful metric - isn't it Invetor-Beware on whether to consider that metric or not?

Imagine, if you will, a one-hundred page prospectus. One hundred pages of facts twisted beyond all manner of reason, with pie crust promises of castles in the sky. Buried within those pages are the SEC-mandated numbers you need to compare this company to any other company trading on thhe exchange. Now imagine every company does this, but each in their own way with their own entirely orthogonal way of presenting their…

ok that makes sense, thanks

Re: Groupon’s Strikeouts Reveal an Unspoken Truth

#26

Post by pbhjpbhj »

adriand wrote: post #7
lambtron wrote: post #5

even though i have my qualms about andrew mason, it seems as if it were the bankers working on the IPO that are doing all they can to get it approved by the SEC so they can earn the fees and to cash out before the public is allowed to invest in groupon. and we are still figuring out if the daily deals model is profitable and sustainable.

> and we are still figuring out if the daily deals model is profitable and sustainable. Well, we're certainly finding out that the daily deals model is profitable for web developers and assorted startups. Hardly a day goes by without hearing about some new Groupon clone, and the number of web developers who are making money from clients who want to build Groupon clones has to be pretty high. It reminds me of a few ye…

From what I've seen now, including being a mark of Groupon's, I think that Groupon amounts mainly to preying on small businesses that don't quite have the nous to realise that it's a bad deal to give up all your profits to Groupon (or whoever) in order to win an enlarged customer base filled with bargain hunters who cost you everytime you serve them. Hyperbole for sure but not that far off I think.

Re: Groupon’s Strikeouts Reveal an Unspoken Truth

#27

Post by jeremymims »

raganwald wrote: post #24
jeremymims wrote: post #9

Groupon has more than 100 million subscribers (mostly in America). If we assume that the total available market is another 50 million or so signups in the US, then these loss leader marketing expenses will drop dramatically (no need to offer $10 for a friend that buys a $5 deal). The attempt of this metric is to explain what their business looks like in another year or so when they've reached some level market satura…

it's insane not to see that marketing expenses will drop and that they can be comfortably profitable. Look, projections based on assumptions are part of the investing game. And while I appreciate your enthusiasm, the likelihood that you are correct is not the point. The point is, there is already an existing method of disclosing assumptions and projections for the future, it's called a pro-forma financial statement .…

I'm actually not defending this particular accounting method since I expect they've filed proper paperwork that explains all their income, expenditures, profit, taxes, etc.

What I'm defending Groupon against (not that they need me) is the ridiculous pot shots at their business model as of late and that somehow they're trying to scam people (You'll probably see a few show up in the comments today).

They've grown a phenomenal amount of revenue faster than anyone ever has before and they've apparently spent quite a bit of money to acquire e-mail subscribers. Groupon is a stupendous outlier when it comes to all businesses before it and the biggest question people have is whether or not the business is sustainable. When these significant marketing costs go away, this should be a very solid business.

Re: Groupon’s Strikeouts Reveal an Unspoken Truth

#29

Post by WillyF »

Oddly enough, there actually is a baseball statistic that takes strikeouts out of the equation. It also takes out home runs. It's called Batting Average on Balls In Play or BABIP. You can see the formula here: http://en.wikipedia.org/wiki/Batting_average_on_balls_in_pla...

BABIP doesn't tell you a ton about a player's overall performance, but it does tell you how lucky they've been if you compare it to their historical BABIP. Some guys have awful years because their skills fall off a cliff (Adam Dunn is in that camp right now). But some player just have terribly unlucky seasons in terms of how defense affects the balls they put in play.

If a player's BABIP is way down (or up), but his line drive rate, strikeout percentage, and home run rates are the same, you can make a good guess that his batting average will regress back towards his historical average.

I'm sure if you told the average baseball fan about BABIP, he or she would call it BS. Yet, it's a great metric for determining whether a player's poor/excellent performance is sustainable.

Re: Groupon’s Strikeouts Reveal an Unspoken Truth

#30

Post by far33d »

jeremymims wrote: post #9

Groupon has more than 100 million subscribers (mostly in America). If we assume that the total available market is another 50 million or so signups in the US, then these loss leader marketing expenses will drop dramatically (no need to offer $10 for a friend that buys a $5 deal). The attempt of this metric is to explain what their business looks like in another year or so when they've reached some level market satura…

Another possible scenario is that their new customers account for a significant portion of revenue. Once they hit the edge of the addressable market, their CPA rises significantly and their revenue goes off a cliff as it becomes harder to acquire new, profitable customers.

There are two ways to read these tea leaves.

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