When Groupon first filed it’s S-1 a few months ago, we reported that Groupon’s business model was deteriorating in its oldest markets with a specific analysis of Boston.
It updated its S-1 yesterday and Boston, its second oldest market, hasn’t improved. It’s gotten worse.
On the one hand, Boston seemed to have continued its impressive growth. Subscribers in Boston grew to 944K from 779K, a 21% increase. Featured merchants grew to 667 from 456, a 46% increase. Accordingly, revenue grew 17% to $10.9 million.
While those top-line metrics look strong, other metrics indicate that the bottom-line might be deteriorating.
Given impressive subscriber growth rates and more deals from merchants, you would expect number of Groupons sold to have increased in proportion. But, in actuality, Groupons sold surprisingly didn’t grow. In fact, they actually slightly declined from 388K to 387K.
Given Groupon added a ton of subscribers in Boston, it means that the groupons sold per subscriber declined by 17.6%.
In other words, Groupon subscribers aren’t buying as many Groupons as they used to.
You might argue that this is just a natural consequence of Groupon’s list getting older but the average age of its Boston list has held flat.
It gets worse when you take into account that Groupon featured almost 50% more merchants in this last quarter. Despite having more deals, Groupon subscribers were buying fewer Groupons.
While Groupon doesn’t disclose profitability metrics for its Boston market, there are some alarming signs.
One such indication of profitability is revenue generated per featured merchant. One of the main costs of the business is the sales expense of convincing a merchant to run a deal. Groupon then needs to sell enough vouchers to recover that sales expense. Unfortunately for Groupon, revenue per featured merchant has been consistently declining and hit a low of $16,342 in its latest quarter.
To summarize, Groupon is spending considerable money to acquire subscribers but those subscribers are buying less Groupons. Groupon is also spending considerable money to acquire merchants but are making less revenue per merchant. That’s not good.
Vinicius Vacanti is co-founder and CEO of Yipit, the leading daily deal aggregator. Yipit also offers a data product which provides competitive historical analysis to the Daily Deal Industry.