Groupon’s Q4 2011 Revenue Increases But Company Loses $37 Million-Daily Deals Doubt Rises:
Is the daily deals sector growing or slowing?
Groupon released its earnings yesterday and cast some doubts on the daily deals sector. Groupon, the largest daily deals site, reported its revenue more than doubled to $506 million in the fourth quarter of 2011 due to expansion overseas, new products and price increases to merchants. The increased revenue didn’t stop the Groupon from losing $37 million in Q4 2011 and the first earnings report since the company filed its initial public offering got mixed reviews.
Unlike professional social media portal LinkedIn, that makes a profit, Groupon is still growing and spending money to expand rapidly. Does this sound familiar? In the 90s, company reports were flying around trading desks that included severe losses while the stocks traded up. Groupon may be different now that the internet and social media has matured but the recent results make some people nervous that the daily deals phenomenon isn’t profitable – yet. Customer acquisition costs are still high and the supposed positive network effects the company should enjoy that would decrease costs per acquisition (CPAs) haven’t kicked in as the company expands globally. We are expecting some consolidation in and around the space that makes the digital spillover effects easier to manage or profitability may continue to be an issue as the slowdown in the daily deals sector continues in the short run. If there is a company in the space to watch closely it may be Groupon as opposed to smaller rivals like LivingSocial that have yet to leave the gate.