Earlier today, Groupon released its first quarter 2012 performance. The company beat expectations, and the market responded in kind with the stock soaring over 15% in after-hours trading, adding to a 19% gain during market hours.
The most surprising detail was that Groupon’s take rate, or merchant commission, actually increased. Many predicted Groupon’s merchant split to shrink given to their fiercely competitive, no barrier market, and the huge success of their low-margin Goods product.
Nevertheless, Groupon has expanded take rate by over 10% in two quarters, from 37% in Q3 2011 to 41% in Q1 2012.
How could this be possible?
Groupon Goods is potentially more profitable than everyone thinks
Based on our proprietary data, Groupon Goods now represents 10% of the company’s North American business, up from 6% just last quarter. Groupon’s massive distribution and ability to instantly monetize large quantities of unused inventory may have given Groupon more negotiating leverage, and take rate, than everyone assumed.
Update (05/16/2012):
Following this publication of this post, Groupon filed its complete 10-Q, which provides more detail on how the company accounts for Groupon Goods.
“The Company evaluates whether it is appropriate to record the gross amount of its goods sales and related costs or the amount earned. For goods revenue transactions where the Company is selling a product, revenue is recorded gross. The Company is the primary obligor in these transactions, is subject to inventory risk and has latitude in establishing prices.”
Groupon recognizes 100% of the sale amount as revenue, rather than billings, for a percentage of Goods deals. As such, take rate is 100% and the amount shared with the merchant or supplier is passed on as a cost of revenue instead of impacting Groupon’s revenue figure.
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Sean Spielberg is a Yipit Data analyst, which provides estimates of Daily Deal Industry performance based on proprietary deal-tracker technology, historical data, and industry insight.