Groupon IPO: The Silver Lining
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Groupon IPO: The Silver Lining
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Re: Groupon IPO: The Silver Lining
#2If indeed it comes down to the lifetime value of a subscriber, assessing the viability of Groupon is difficult when the company is so young and growing so fast.
Given that difficulty, the key metric I would want to know is:
Acqusition Cost - (Conversion Rate to Buying a Groupon x Avg Groupon Cost x Avg Groupon % Split)
(eg, $5 - (25% x $20 x 50%) = +$2.50
If the end result is a negative, it means, on an overall average, Acquisitions pay for themselves with the first Groupon they buy. Get that outcome, and any further lifetime purchases are cream.
If (as I assume it currently is) the answer to that is a positive number (like my example) then they need repeat purchases. You need to add % Repeat to the formula - not an easy number to know, given (as noted above) how young the company is and how fast they're growing.
Groupon are obviously optimistic, hence the ACSOI figure which is predicated on the assumption that subscribers will stay loyal, make repeat purchases, and so marketing costs will significantly drop in the future.
And obviously lowering subscriber acquisition costs is also important - the figures in the OP showed these were down by almost 10%, which takes the result of my metric closer to the desirable $0 and below.
Re: Groupon IPO: The Silver Lining
#3If indeed it comes down to the lifetime value of a subscriber, assessing the viability of Groupon is difficult when the company is so young and growing so fast. Given that difficulty, the key metric I would want to know is: Acqusition Cost - (Conversion Rate to Buying a Groupon x Avg Groupon Cost x Avg Groupon % Split) (eg, $5 - (25% x $20 x 50%) = +$2.50 If the end result is a negative, it means, on an overall avera…
But don't they need to grow to justify that valuation? A mailing list is a depreciating asset. You can milk it year after year, but the number of subscribers who buy a Groupon will decrease.
Re: Groupon IPO: The Silver Lining
#4If indeed it comes down to the lifetime value of a subscriber, assessing the viability of Groupon is difficult when the company is so young and growing so fast. Given that difficulty, the key metric I would want to know is: Acqusition Cost - (Conversion Rate to Buying a Groupon x Avg Groupon Cost x Avg Groupon % Split) (eg, $5 - (25% x $20 x 50%) = +$2.50 If the end result is a negative, it means, on an overall avera…
Thanks for the thoughtful comment, Jacob. That's definitely a great way to look at it.. At the very least you'll also see how many Groupon's it takes to cover and then better understand what that % repeat number needs to be. Like you, I would assume the number is positive, but I don't think it will ever be negative as margins will continue to deteriorate (gross margins from Groupon's perspective, that is).
Re: Groupon IPO: The Silver Lining
#5If indeed it comes down to the lifetime value of a subscriber, assessing the viability of Groupon is difficult when the company is so young and growing so fast. Given that difficulty, the key metric I would want to know is: Acqusition Cost - (Conversion Rate to Buying a Groupon x Avg Groupon Cost x Avg Groupon % Split) (eg, $5 - (25% x $20 x 50%) = +$2.50 If the end result is a negative, it means, on an overall avera…
But don't they need to grow to justify that valuation? A mailing list is a depreciating asset. You can milk it year after year, but the number of subscribers who buy a Groupon will decrease.
Another great point - churn is their biggest concern. They need to continue to keep the product relevant somehow so people who do actually read and buy continue to come back, or figure out a way to convert more inactive subscribers somehow. They just started a loyalty program that could bear fruit, but only time will tell.
Re: Groupon IPO: The Silver Lining
#6If indeed it comes down to the lifetime value of a subscriber, assessing the viability of Groupon is difficult when the company is so young and growing so fast. Given that difficulty, the key metric I would want to know is: Acqusition Cost - (Conversion Rate to Buying a Groupon x Avg Groupon Cost x Avg Groupon % Split) (eg, $5 - (25% x $20 x 50%) = +$2.50 If the end result is a negative, it means, on an overall avera…
I can almost guarantee that number is positive and % Repeat is something they closely monitor and consider in their internal equationss. As any direct response/lead gen marketer knows, customer retention rates/repeat buyer % is a crucial element in the formula. I suspect they have a very clear idea of what this rate is right now, and as their business grows, this number only gets more accurate. Right now, operating costs aside, they only need to get their lifetime value per customer above $5.75 in North America, which isn't entirely unfathomable.
Re: Groupon IPO: The Silver Lining
#7If indeed it comes down to the lifetime value of a subscriber, assessing the viability of Groupon is difficult when the company is so young and growing so fast. Given that difficulty, the key metric I would want to know is: Acqusition Cost - (Conversion Rate to Buying a Groupon x Avg Groupon Cost x Avg Groupon % Split) (eg, $5 - (25% x $20 x 50%) = +$2.50 If the end result is a negative, it means, on an overall avera…
Thanks for the thoughtful comment, Jacob. That's definitely a great way to look at it.. At the very least you'll also see how many Groupon's it takes to cover and then better understand what that % repeat number needs to be. Like you, I would assume the number is positive, but I don't think it will ever be negative as margins will continue to deteriorate (gross margins from Groupon's perspective, that is).
While they'll probably continue to acquire customers indefinitely for the near future, the question remains whether, once they've captured adequate market share/some sort of saturation point, they can really improve their customer retention through much better targeted deals, and perhaps, some sort of user engagement on their site. In theory, at some point when they stop acquiring customers, if they can have good user engagement and therefore retention, they'll cut out a large chunk of their costs (customer acquisition marketing) and still have their user base that draws revenue. Whether Groupon can pull this off, with ever growing competition, is the question on everyone's mind.
Re: Groupon IPO: The Silver Lining
#8If indeed it comes down to the lifetime value of a subscriber, assessing the viability of Groupon is difficult when the company is so young and growing so fast. Given that difficulty, the key metric I would want to know is: Acqusition Cost - (Conversion Rate to Buying a Groupon x Avg Groupon Cost x Avg Groupon % Split) (eg, $5 - (25% x $20 x 50%) = +$2.50 If the end result is a negative, it means, on an overall avera…
I can almost guarantee that number is positive and % Repeat is something they closely monitor and consider in their internal equationss. As any direct response/lead gen marketer knows, customer retention rates/repeat buyer % is a crucial element in the formula. I suspect they have a very clear idea of what this rate is right now, and as their business grows, this number only gets more accurate. Right now, operating c…
I think you're right that they track this very closely internally. You hit the nail on the head with LTV - with the amount they spent to acquire what they already have, the outlook for clearing that LTV hurdle doesn't look that bad.