Groupon Case Analysis

GrouponCase Analysis

Studentno

Duedate

Inan aim of giving a recommendation of the value of the Groupon firm, aaccompany valuation needs to be conducted. The valuation assists indetermining whether the high growth of the firm can sustain theincome and still produce profits to the shareholders. The valuationshould focus on the forecasts, the market, consumers and themerchants this areas can offer an overview of the value of thecompany.

Analysis

Consideringthe financial year 2001 to 2011 there was positive increase in theincome of the company. Compared to the previous fiscal year therevenue grow with a 415% Increment rate. Evidently, the company cuton the cost of production. Nonetheless, due to macroeconomic factors,the cost of revenue experienced a change of 504%. The acute decreasein the growth rate Northern parts of America may be used as evidenceof the incapability of the company to sustain such levels in times tocome as viewed in the first exhibit. Considering the ratios betweenthe revenue and the gross billings then one can conclude that therevenue per sale is decreasing over time. The costs of purchasingconsumed over 65% of the total income in the year 2010. Internationalgrowth on the other hand, hit an all-time high of over 760%indicating that the acquisitions increased the top line growth andexpansion. The movement or rather the shift in income in the Northernparts of America made a major contribution of over 60% of thecumulative sales in the year 2010 in the following year the ratedrooped to approximately 39%. Focusing on the net margin, in 2010,the rate was at -132% however it reduced in the following year to-18% as viewed in exhibit 2. The company adopts a system ofdistributing money equally amongst the cities and towns the companyoperates in. the program indicates that there is constant growth inthe revenue in the cities and towns. However in the year 2010 thegrowth of revenue on a national scale showed a decline positing $8.9million but the trajectory changed to a positive one in the followingyear where it hit over $33 million exhibit 3. The success oforganizations is pegged on its ability to formulate a sustainablecost structure that ensures high levels of profits. For GrouponCompany, the selling and general administrative costs increased form51% to a high of over 300% in the 2011. The giving or allocation ofSG&ampA to the individual employees depicted quit a large incrementof $2189 as seen in the fourth exhibit.

Merchants

Thedata from but from than ten deals that the company has engaged in thepast would provide data variations for the company analysis.Profitability of the company is not only pegged on the volumes soldand the marketing structures adopted but also the discounts that thecompany offers the loyal customers. For Groupon Company the averagepercent discount ranged from 60-68% giving an average of 64.5%.Assuming that the estimated cost of goods sold at 50% then merchantsmade losses. Averagely, the loss of the merchants was at $30 forevery deal they purchased from the company. From an observers view,considering the number of merchants and the number of deals that thecompany in the fiscal year, then the merchants were the biggest thecompany losers. For the revenues of the company to break even, thenthe rational formula that the company should adopt is coverage ofCOGS being at around 19% of the revenues earned by the company.Valuation cannot be complete if the overhead costs to the analysisare done. Considering the overhead cost to the analysis depicts theunprofitability part of the deals for the organizations that have arelatively high cost structure in the operation or the running of thecompany exhibit 5. With the competition that the technologicaladvancement has brought, researchers have predicted that themerchants of the company would want to negotiate for higher revenues.That can be attributed to the competition in the global market. Ifthat takes place, then the company expects a decrement in the revenueafter cost. Surveys have also shown that Groupon has the largestnumber and level of merchants that could be viewed to run a deal.There is a negative correlation between the merchants and thevariables. Considering the contribution that dining makes 23% of thedeals run that nonetheless represent 36% of the total vouchers thatare sold. The lessons bring out 13% of the total number of deals andover 6% of the vouchers sold. The company should consider thecreation of a strategy that that marches the merchants and thecompany. The strategy should offer availability of consumer demands.Addressing the consumer demands increases the profitability of thecompany and reduced the cost of supply exhibit 6

Consumers

Researchhas posited it that the clientele base of the company falls in theage bracket of between ages 18-35 years. The most commoncharacteristics of the consumers is that they have a bachelor’sdegree, are not married and have a disposable income over$10,000exhibit 7.

Forecast

Inthe recent past the company has acquiredsubscribersnonetheless the big question is if the customers are willing to payfor the same product at a higher price in future. The company hasadopted a discount system which rationally attracts consumers. Theforecasts revenues of the years 2013-2014 predicts a more than 30%growth in the towns the company operates in and a 50% growth ofrevenue per city used. The operating expenses are viewed grow at 90%with an assumption that 95% yearly growth costs by at least 4%yearly. Then the firm could make profits of over $3.6billion by theyear 2014.

Recommendation

Despitethe rapid growth of the company with significant revenues, andheightened subscriber volumes, the firm is likely higher costs ofproduction. A high cost of production then translates to lower profitmargins and high cost of products. The foreseeable position of thecompany is that it might not be profitable in the next two financialyears. Therefore as predicted by Google the true worth of the companyis $6 billion.

Appendix

Exhibit1

Grossbillings

Financial statement percentages change

2010

2011

2010-2011

Gross Billings

745,348

3,985,501

435%

Total revenue

312,941

1,610,430

415%

Cost of revenue

42896

258,879

504%

SG&ampA

196,637

821,002

318%

Exhibit2

Financial percentages 2010-2011 in %

Gross Billings

42

40

International

36

61

SG&ampA

63

51

Total Operating Expense

234

114

Exhibit3

Total revenue

312,941,000

1,610,430,000

Income/city

1,043,137

3,220,860

Income/country

8,941,171

33,550,625

Exhibit4

SG&ampA

196,637,000

821,002,000

Employees

4150

11471

SG&ampA/Employee

47,382.41

71,571.96

Exhibit5

Tenprevious deals Evaluation

year

Price of voucher

% of retail

Loss with COGS 50% revenue

COGS to break-even point in %

2009

43

39

33.50

20

2009

42

39

33.50

19

2009

32

37

27

19

2008

37

39

28.50

20

2009

31

34

29.50

17

2010

29

34

28

17

2009

33

34

31.50

17

2009

42

40

32

20

2009

28

34

27

17

2010

46

40

35

20

Exhibit6

Percent Discount

Maximum

66%

Minimum

60%

Average

63%

Exhibit7

Characteristics

Likelihood percent

Age

18-34

68%

income

$100,000

29%

Gender

Female

77%

Marital status

Single

49%

Education

Bachelor’s Degree

50%

Work

Full-Time

75%