Groupon Reports Loss in First Quarterly Filing After IPO

Daily Deals Site Spent $157 Million on Marketing Last Quarter, Largely to Acquire Customers Overseas

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Groupon outperformed analysts' revenue expectations today by announcing $506.5 million in revenue for the last quarter and year-over-year growth that nearly tripled, but still reported a net loss of $42.7 million, or 8 cents a share, causing its stock price to tumble in after-hours trading.

The largest daily deals site had a shining debut when it went public Nov. 3, raising $700 million while pricing its offering at $20 a share, but the bloom was quickly off the rose. Shares were trading below the offering price a mere three weeks later. They've rebounded in 2012, but questions persist about the heavy marketing costs of acquiring new customers and the ultimate sustainability of Groupon's business model.

In a conference call to discuss the results, CEO Andrew Mason attributed the loss to higher overseas taxes. Groupon also reported operating income of $15 million for the period, its first of operating profitability since the second quarter of 2010, when it began its international expansion. The company is now active in 47 countries.

Several drivers helped expand revenue, Mr. Mason said. "No. 1 is the strong repeat purchase behavior in our customer base."

That's an important point because acquiring customers is a costly undertaking for Groupon, composing the bulk of its heavy marketing expenditure. The company spent $769.6 million last year, an astronomical amount considering that a global megamarketer like Visa reported spending $964 million on worldwide advertising, marketing and promotion in 2010.

In its roadshow presentation leading up to its IPO last fall, Groupon reported that its quarterly marketing spending as a percentage of revenue was falling. It had dropped from 78% in the first quarter to 54% in the second quarter to 40% by the September quarter, but growth of paying customers was diminishing along a similar trajectory.

The same trend held for the fourth quarter of 2011, when marketing spend was reported to be roughly $156.5 million, or 31% of revenue. The active customer base -- defined as those who have purchased a Groupon in the preceding 12 months -- grew 20% quarter-over-quarter.

Marketing expenditures in the quarter fell 22 % from the quarter a year earlier, Groupon Chief Financial Officer Jason Child said during the conference call. Marketing spending was especially significant in more recently launched international markets, but should become more efficient as those markets mature for the company, Groupon said.

Groupon generated 37% of last quarter's revenue from its North American business and 63% from abroad, a reversal from 51% vs. 49% last year.

Mr. Child projected that Groupon's revenue for the current quarter will be between $510 million and $550 million.

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