Whoa... Groupon Generated $760M in Revenue in 2010(mashable.com)
mashable.com
Whoa... Groupon Generated $760M in Revenue in 2010
http://mashable.com/2011/02/25/groupon-760-million/
8 comments
Does Groupon count the 50% that is owed to the vendors in their revenue? If so, it doesn't feel all that impressive. I'd be more curious to see how much profit was made.
Yes, that is considered Revenue.
I disagree. I believe Groupon should call this $760M number gross revenue, with recognizable net revenue being somewhat lower. (I'm not an accountant, but I've had some exposure to these issues.)
One of the key questions in proper revenue recognition is determining whether the company is, in essence, a principal or an agent. eBay, for example, reports net revenue, which is a percentage of its gross merchandise sales, as it only collects transaction fees for arranging exchanges between a buyer and seller.
Groupon keeps a fraction of the total dollars customers send them, with the balance being distributed to the merchant when the customer redeems the coupon.
A good discussion of the accounting standard is here: http://www.revenuerecognition.com/content/experts/9002.asp
In the rather long article linked above, it mentions three indicators that can point to net revenue treatment as the most appropriate, each of which I think applies to Groupon:
a) "The supplier is the primary obligor in the arrangement." In other words, the local merchant is ultimately responsible for delivering the product/service to the customer, not Groupon.
b) "The amount the company earns per transaction is fixed (in dollars or as a percentage of the arrangement fee)." If I spend $100 on a "$25 off $50 deal," Groupon still makes its stated fee/percentage of the purchase price of the Groupon. They don't make anything on the incremental dollars I spent at a restaurant over and above the Groupon amount, for example.
c) "The supplier has credit risk." This may not be directly applicable, but the gist of this indicator is whether it is the merchant or Groupon who is ultimately at risk to collect from the customer for the product/service. My guess is this risk lies with the merchant. (Imagine I use a Groupon for part of the cost of a meal; if I can't pay the balance, it's the restaurant that bears the loss, not Groupon.)
These issues are always a judgment call (accounting is rarely as black and white as one assumes it to be). But to my mind, these factors indicate Groupon should likely call the $760M revenue figure gross, not net.
One of the key questions in proper revenue recognition is determining whether the company is, in essence, a principal or an agent. eBay, for example, reports net revenue, which is a percentage of its gross merchandise sales, as it only collects transaction fees for arranging exchanges between a buyer and seller.
Groupon keeps a fraction of the total dollars customers send them, with the balance being distributed to the merchant when the customer redeems the coupon.
A good discussion of the accounting standard is here: http://www.revenuerecognition.com/content/experts/9002.asp
In the rather long article linked above, it mentions three indicators that can point to net revenue treatment as the most appropriate, each of which I think applies to Groupon:
a) "The supplier is the primary obligor in the arrangement." In other words, the local merchant is ultimately responsible for delivering the product/service to the customer, not Groupon.
b) "The amount the company earns per transaction is fixed (in dollars or as a percentage of the arrangement fee)." If I spend $100 on a "$25 off $50 deal," Groupon still makes its stated fee/percentage of the purchase price of the Groupon. They don't make anything on the incremental dollars I spent at a restaurant over and above the Groupon amount, for example.
c) "The supplier has credit risk." This may not be directly applicable, but the gist of this indicator is whether it is the merchant or Groupon who is ultimately at risk to collect from the customer for the product/service. My guess is this risk lies with the merchant. (Imagine I use a Groupon for part of the cost of a meal; if I can't pay the balance, it's the restaurant that bears the loss, not Groupon.)
These issues are always a judgment call (accounting is rarely as black and white as one assumes it to be). But to my mind, these factors indicate Groupon should likely call the $760M revenue figure gross, not net.
No, it shouldn't count as revenue. The money owed to merchants is considered a liability and is probably treated as Accounts Payable.
Of course it is revenue.
Think about retail for a moment. The amount of money a retailer takes in is revenue. The fact that he needs to pay a wholesaler for the items sold doesn't change that fact.
If the money is being paid to Groupon, it's revenue.
Think about retail for a moment. The amount of money a retailer takes in is revenue. The fact that he needs to pay a wholesaler for the items sold doesn't change that fact.
If the money is being paid to Groupon, it's revenue.
In transactional / middle-men businesses, it's more standard to only report your percent take as "revenue", rather than including pass-through dollars (e.g. PayPal only reports their fees as revenue, not all dollars that flow through PayPal). But I suppose it's unclear if Groupon is that kind of business; arguably they could be more like a retailer, where it is standard to include all dollars flowing through as revenue.
Agreed. It shouldn't be counted as revenue. It is such misleading reporting that leads to over valuation and bubbles.
Groupon is essentially a fancy retailer that "drop ships" everything. In accounting terms it's done this way:
$760M Gross Revenue
-$360M COGS (cost of goods sold)
-----
$400M Gross Profit
-300M (Itemized expenses)
-----
$100M Operating Income
-$10M Tax/Depreciation/etc
-----
$90M Net Income
Figures besides revenue are just guesses of course, but this is how it's done in accounting terms.
For a real example see something like Amazon: http://finance.yahoo.com/q/is?s=AMZN+Income+Statement&an...
$760M Gross Revenue
-$360M COGS (cost of goods sold)
-----
$400M Gross Profit
-300M (Itemized expenses)
-----
$100M Operating Income
-$10M Tax/Depreciation/etc
-----
$90M Net Income
Figures besides revenue are just guesses of course, but this is how it's done in accounting terms.
For a real example see something like Amazon: http://finance.yahoo.com/q/is?s=AMZN+Income+Statement&an...
If true, that's double the previous speculation that they were making $1MM a day (revenue).
Isn't that about half of what facebook brought in?
Facebook is probably going to bring in a lot more this year with Facebook Credit and Facebook Place.
Although the revenue is high, the expense for Groupon is probably high as well, after all it's not cheap to launch that many commercials during the Superbowl, and have ads at every other corner on mainstream websites.
At least they have income.
Although the revenue is high, the expense for Groupon is probably high as well, after all it's not cheap to launch that many commercials during the Superbowl, and have ads at every other corner on mainstream websites.
At least they have income.
I know! Seems like they're doing a lot better right?
A bit off-topic, but I don't really get Groupon. I looked at it for my region about 5 times and in each case the offer seemed to be way overpriced even with the discount and it was something that I wouldn't want even for free, and possibly not even if I got paid some small amount (for the time wasted).
That might be because you don't do those activities and perhaps reticent to try new things. Most people shy away from anything aside from work, TV or Movie watching, going out to a select small group (or all corporate) restaurants, and do activities that, even if they may require an upfront cash outlay (biking, hiking, kayaking), are essentially free to do.
Spa treatments and Tae-Bo classes aren't really marketed towards a majority 20-40 year old men in the fuddy-duddy computer and technology field.
Spa treatments and Tae-Bo classes aren't really marketed towards a majority 20-40 year old men in the fuddy-duddy computer and technology field.
Sounds like you live in an area where Groupon hasn't been widely accepted.
In Dallas the most common deal (that interests me) is $10 for $20 food at restaurant X. It is quite obvious how this is a good deal for me.
I also once used it to purchase 2 opera tickets for $25. After I went to the opera I found out these ticket would have normaly been $115 a piece. Although I did research a bit and call the opera before purchasing try to make sure I was getting a good deal.
In Dallas the most common deal (that interests me) is $10 for $20 food at restaurant X. It is quite obvious how this is a good deal for me.
I also once used it to purchase 2 opera tickets for $25. After I went to the opera I found out these ticket would have normaly been $115 a piece. Although I did research a bit and call the opera before purchasing try to make sure I was getting a good deal.
Then perhaps you lack the fundamentals of business altogether. If there is one rule I have had to repeat to so many (and only god knows why this even needs to be said) is that YOU do not represent everyone. Everyone is DIFFERENT and because people are different, everyone will have different wants and needs.
Just because YOU don't want what Groupon or a similar service offer in your area for the particular deals you've come across does not mean this applies to everyone else around you. If you approach every business like that, 99% of the business in the world will probably be non-existant, after all, I'm sure there are a lot of things YOU don't use or want.
Just because YOU don't want what Groupon or a similar service offer in your area for the particular deals you've come across does not mean this applies to everyone else around you. If you approach every business like that, 99% of the business in the world will probably be non-existant, after all, I'm sure there are a lot of things YOU don't use or want.
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I wonder if it is sustainable. Are the merchants actually making good profits from using Groupon? Will consumers keep visiting Groupon if merchant only post deals they will actually make money on?
~4000 employees generating revenue of 760m, which vendors get a big chunk of, doesn't seem super impressive. I mean it's a nice amount of income, but it doesn't seem very 'whoa..'.
23x the prior year's earnings, more than a third coming from overseas, and founded in 2008? Sounds pretty impressive to me.
With nearly $1 billion in funding, it'd be very disappointing to not be generating revenue at a very high level.
Check your facts. They turned $166M in funding (as of Dec 2010) into $760M in revenue for 2010.
How the hell is $1B in funding in Jan 2011 going to retroactively affect revenue in 2010??
How the hell is $1B in funding in Jan 2011 going to retroactively affect revenue in 2010??
All I am saying is that if investors are willing to invest $1 billion, the company should be pulling in pretty high revenues, regardless of the time they raised the money. Jeez.
Assuming the rumors were true, they could have been bought for $6bn in November by Google on ~$750mm 2010 revenue after three rounds totaling $171mm -- an outstanding return.
However, they chose to turn down the offer, and take on fourth round of nearly $1bn in Dec/Jan and (presumably) grow internationally. It's a bet by the board that they can grab land faster than anyone else.
However, they chose to turn down the offer, and take on fourth round of nearly $1bn in Dec/Jan and (presumably) grow internationally. It's a bet by the board that they can grab land faster than anyone else.
Also, a large percentage of that was secondary, meaning it went to existing shareholders. So the actual primary funding was much less.
Edit: Hypothetical numbers for illustration purposes only:
Edit: Hypothetical numbers for illustration purposes only:
A invests $100M in company.
B purchases half of A's shares for $200M.
C purchases half of B's shares for $300M.
D purchases remaining A shares for $400M.
How's your company doing?
back of napkin math:
50% goes to vendors, so that's down to 380mm
4,000 employees at average of $50K, comes out to 200mm
180mm remaining...they advertise pretty aggressively, so let's say they spend 100mm on ads(probably less).
Which still leaves them with 80mm in profit
50% goes to vendors, so that's down to 380mm
4,000 employees at average of $50K, comes out to 200mm
180mm remaining...they advertise pretty aggressively, so let's say they spend 100mm on ads(probably less).
Which still leaves them with 80mm in profit
I know it's back of the napkin accounting, but lets not forget all the other operational costs?
- Credit card processing on all transactions (3%?) - Office space for 4000 employees - Taxes - etc
Would take another huge chunk out of that 80mm
- Credit card processing on all transactions (3%?) - Office space for 4000 employees - Taxes - etc
Would take another huge chunk out of that 80mm
I would of take the 6 billion from google and went to dubai to join the prince and built an island in the shape of a giant coupon. With such a huge work force they need to just about monopolize the coupon game before they start committing suicide for not selling.
The original WSJ article: http://online.wsj.com/article/SB1000142405274870340860457616...