Today, Groupon filed a prospectus to raise funds via a public offering. Over the next week, they will be pitching investors to participate in this offering.
One question these potential investors should make sure to ask: what happened to Groupon’s quarter over quarter growth rate?
Why is the growth rate collapsing?
There are a few potential reasons why their revenue growth could be stalling.
- Reduced marketing spend. While Groupon was able to break even this quarter, they did so by reducing their marketing spend. Unfortunately, marketing spend also fuels growth by acquiring new subscribers. Groupon grew their subscribe base by 23% this quarter. The previous quarter, they grew by 39%.
- Competition. As competition in the space heats up with Google Offers, Amazon and LivingSocial, Groupon is getting crowded out of the inbox. In Q3, the number of Groupons sold grew just 1% despite Groupon growing their subscribe base 23%.
- Halted Growth in Deals Offered. In previous quarters, Groupon’s growth benefited from the fact that they were featuring more merchants in each city. In Q2, they featured 38% more merchants than in Q1. However, in Q3, they didn’t feature more merchants than Q2 and thus did not benefit from further personalisation.
For a business that’s roughly break-even, Groupon will certainly need to justify a valuation over $10 billion via a growth story. Unfortunately, that growth story needs some convincing.
Vinicius Vacant is co-founder and CEO of Yipit, the leading daily deal aggregator. He also shares his thoughts on the daily deal industry via his twitter account: @vacanti. Yipit also offers a data product which provides offer detail and competitive intelligence to the Daily Deal Industry.