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Groupon India Strategic Study
Virendra Pandey
Sources of Data
All financial data are obtained from the latest S-1 filing by Groupon to the SEC and Annual filings by Jasper Infotech Pvt. Ltd. (Snapdeal )
Executive Summary
India is an emerging economy A large consumer base is untapped. There are 151 millions internet users in India (International
Telecommunication Union) Out of every 5, 3 users use online retailing website. In November 2012, 7.6 million Indians visited Coupon sites,
representing 16.5 percent of Internet users in the market. Snapdeal.com led the category with 5.2 million visitors, followed by Mydala.com with 1.4 million visitors and Crazeal.com with nearly 1 million visitors.
Players in online couponing segment. (In this presentation)
Snapdeal Groupon India ( India subsidiary of Groupon Inc.)
Business Model
Small Buyers and Sellers
Disorganized
Groupon
Structured
Process
A local daily deal is
displayed on Groupon
Buyer pays for the deal
Groupon collects the
payment
The deal is valid if a minimum no. of people
buy
splits revenue with the seller
Seller is paid within
contracted days
Buyer may use the deal in
prespecified time
Buyer may return to the seller without
Groupon
What this business Brings to the table
Guaranty
Purchase
d Deal
s
Minimum Grou
p Size
Buyers Sellers
Value Creation
By facilitating trade Bringing together small sellers and individual
buyers Giving small businesses visibility to large audiences
locally Exposing individual consumers to a wide selection
of daily deals to choose from
Benefits to Sellers
Wide exposure Higher trial rates as compared to traditional
advertising Opportunity to induce repeat business A minimum number of customers are guaranteed
when a deal goes on live
Benefits to Buyers
A wide selection of deals Large discounts Opportunity to try out services/products that are
usually expensive Groupon guarantees the validity of the deal
How Has it Worked Out for the players?
Groupon
• Groupon.com was launched in November 2008.
• The website features daily deals on the best stuff to do, see eat and buy in 48 countries and counting.
• Has over 10000 employees• Groupon is the fastest growing company,
reaching biilion dollars of revenue faster than anyone ever.
Groupon India
Groupon entered India through acquisition of the Indian ‘deal of the day’ site – SoSasta.com.
Rebranded as crazyzeal.com, afterwards converted into Groupon India.
294th traffic rank in India. (Alexa.com)
Some statistics
Groupon India
Who visits Groupon.co.in
Groupon India
Groupon Inc.Revenues (Mil. $)
Dec-09 Dec-10 Dec-11 Dec-120
500
1000
1500
2000
2500
Operating Income (Mil. $)
Jan-08 Jan-11-450
-400
-350
-300
-250
-200
-150
-100
-50
0
North American Deals
Activities23%
Events6%
Food & Drinks26%
Health & Beauty
17%
Retail17%
Services11%
International DealsActivities
11%
Events16%
Food & Drinks23%
Health & Beauty
34%
Retail4%
Services12%
MarketingSWOT
Strengths and Weaknesses
Strengths Brand equity among the consumers as well as
merchants A large established customer as well as
merchant base Ability to innovate to offer different deals
Weaknesses Highly unprofitable Running out of cash Corporate governance is an issue
Opportunities and Threats Opportunities
Entering international markets via partnerships or M&As
Offering a wider selection of deals Offering location-based deals Increasing the merchant base
Threats Fierce competition in international markets May not find investors to fund operations
Groupon AdvantageGroupon has more than 100 million emails in the database
Groupon has partnered with more than 75,000 merchants
Groupon has more than 100
million emails on the file
Groupon
Advantage
Groupon Inc.- The Star Groupon commands a large market
share in daily deals market It is also in a market that is growing
leaps and bounds However, can we label Groupon as a
Star? The next few slides explain why we
can’t
Groupon Inc. Valuation
Offer Too Good To Refuse? In November 2010, Google
offered to buy Groupon for $6 billion Groupon refused this massive offer
they believed their potential was much more
This was the first time Groupon’s valuation came into focus
IPO Frenzy
Just before Groupon filed for S-1 with the SEC, the market put a value of $25 billion to Groupon
On June 2, 2011 Groupon files for an IPO at a valuation of $30 billion
Attacks on Valuation Academicians pointed out the issues with
accounting at Groupon Groupon shows increasing cash problems Operating cash flow decreased from
290.45M in 2011 to 266.83M 2012.
Criticisms and Controversies
Business Development
For Groupon “marketing expenses” mean money spent to acquire subscribers
Selling, general, and administrative expenses (SG&A) mostly include the money spent on acquiring merchants
Combined marketing and SG&A have been much larger than the revenue so far
Small Business Suffer
Daily deals actually lead to losses to small businesses can’t handle the large influx of customers
with large discounts most customers don’t return Groupon takes a large chunk (up to 50%)
of the already discounted revenue Groupon pays only over sixty days, thus
creating liquidity crunch for merchants
Price Promotion vs. Branding Although price promotions may
increase revenues in the short term, they may dilute brand equity
Regular customers may start using Groupon thus reducing the revenue premium that the merchant obtains from such loyal customers
Quality of Subscribers
Groupon subscriber database has poor quality only about 20% subscribers have ever
purchased a Groupon half of these purchasers never bought
another Groupon this translates into large acquisition costs
per buying subscriber for Groupon compared to the small revenue these customers generate
Competitive Advantage
Many critics claim that Groupon’s business is easily replicable currently, however, only LivingSocial has
emerged as a major GLOBAL competitor Facebook and many others dropped out this perhaps indicates that many don’t think
that the business is profitable in China and India, Groupon is struggling
due to local competition Google and Amazon have entered this space
IPO
Groupon first set the IPO price at $18 per share and then subsequently increased it to $20 per share
The IPO had a nice 30% pop at the end of the opening day. The stock closed at $26
The price has been volatile ever since. At one point the shares traded at as low as $9 per share.
Stock Performance
Sanpdeal
Snapdeal
Launched in Feb 2010 by two entrepreneurs, Kunal Bahl and Rohit Bansal,One a graduate from Wharton Business School and the other an IIT Delhi alumnus.
They own Jasper Infotech a multi-channel direct marketing platform company under which Snapdeal operates.
A pioneer in the online discounting market in India. It holds the 18thrank among top traffic receiving sites in India. (Alexa, Snapdeal site statistics, 2013) It is the leader in online couponing segment in India.
Daily time Spent on site 6:26 minutes.
Funding
Round 1: In January 2011, received a funding of $12 million from Nexus Venture Partners and Indo-US Venture Partners
Round 2: In July 2011, the company raised a further $45 million from Bessemer Venture Partners, along with existing investors Nexus Venture Partners and Indo-US Venture Partners
Raised a 3rd round of funding worth $50 million from eBay and received participation from existing investors – i.e. Bessemer Venture Partners, Nexus Venture and IndoUS Venture Partners. With this round, Snapdeal has raised a total of $102 million of funding.[5]
Acquisitions
In June 2010, acquired Bangalore-based group buying site, Grabbon.com
In April 2012, acquired esportsbuy.com, an online sports goods retailer based out of Delhi.
In May 2013, acquired Shopo.in, an online marketplace for Indian handicraft products
Financial Highlights
Net loss of 81,55,8,193 cr. For the FY ending march 2012.
Company expects to record 2000 cr. Of revenue for the FY 2014.
Cash pile of 99,23,93,342. (FY 2012) Working Capital (excluding cash) fully financed
through current liabilities.
Summary
Though revenue growth is under pressure but recent round of funding shows a promising future . Despite book losses Snapdeal has large market share and brand presence.
Current economic slowdown is also responsible for a chunk of revenue growth slump.
Strategic alliance with ebay will build the company’s strength.
E tailing segment has increased the strength and has given an edge over Groupon India.
Groupon : Way Ahead Groupon has not been aggressive in the Indian market. Should resort to Inorganic growth by acquiring
companies which are complimentary to its own business. Could use $ 1.2 billion dollar on its book for serial
acquisitions. Adding E tailing segment will add into the revenue
growth. Bank on its international brand value. Should focus on keeping fixed cost as low as possible.
Thank you !