There’s been a lot of talk recently about the Chicago startup Groupon. Groupon brands itself as a group-buying site, but it’s really more of a localized version of what woot.com does. They post a new deal (which they call a Groupon) every day, available only on that day. If enough people want to buy it, everyone gets it for a substantial discount. Otherwise, nobody gets anything, but this rarely happens from what I can tell.
According to TechCrunch, the company is in the process of raising money at a $1.2 billion dollar valuation. There was lots of speculation about the future worth of the company, but little information about current revenue, even though there is a lot of raw data readily available in the site’s archives. I put together a scraper (in just a few lines of Python, thanks to BeautifulSoup) and gathered a total of 1065 past Groupons.
It isn’t clear how Groupon decides which Groupons to display in its archives. Presumably they are the better selling ones, so my sample is not a random sample, which would affect the numbers. Everything that follows should be taken with a grain of salt, but they should be reasonable as ballpark figures.
According to the data I collected, the average Groupon costs $30 and entitles the buyer to 57% off. On average 1155 people purchase it, resulting in $28,130 of revenue to Groupon ($28,130 is less than 1155 * $30 = $34,650 because, apparently, people are more willing to buy the cheaper Groupons.)
Averages are nice, but what I really wanted was totals. I was able to approximate what fraction of the data I had because Groupon advertises the “Total dollars saved” and “Total Groupons bought” on every page. By dividing my numbers by those, I determined that I had a little over a third of the data. Specifically, my data covered 31.2% of Groupons sold, and 37.4% of total savings.
Extrapolating the data I had (again, with the disclaimer that my sample may not be random), I calculated the total revenue since the beginning to be $80,188,176. If Groupon takes a 35% cut (to take a wild guess), $28 million of that is left after Groupon pays the company offering the deal. According to CrunchBase Groupon employs 90 people. I won’t speculate as to the operating costs of Groupon over the last year and a bit of operation, but once you subtract that number the rest is profit to date.
Looking on a monthly basis, the recent growth of the company is clear. A third of the total savings — in over a year of business — happened last month. This works out to $26,706,059 in revenue last month alone, or about $9.3 million (less the operating costs) profit if you assume they take a 35% cut. The below graph shows the growth by month.
Whether or not it’s a $1.2 billion company (BusinessInsider says that’s actually low, though without any quantitative justification), they’re clearly doing well for a company just over a year after launch.
Here are a couple more graphs constructed from the data (click to enlarge).
(Graphs were created with Google Fusion Tables.)
Update May 26: a few more graphs with more recent data follow.
Great writeup. If you take a very very conservative 10X multiple, this means that the investors think that Groupon will make $120M in profit in perpetuity. Assume 90 people at roughly $100K a year on average, all in, that’s $9M in personnel cost annually. So by your math, they’re paying for personnel cost in 1 month, which leaves 11 months of revenue ($99M) to non-personnel costs. I’d gamble that this company is in the $50-$80M in net profit annually and I’d say that Business Insider is probably right. This is probably an undervalued valuation. Most valuations use way more than a 10X multiple (earnings multiple is analagous to earnings per share which can get ridiculous in the stock market, sometimes as high as 400X) and we can assume that revenue will grow ridiculously as compared to personnel cost.
Neat stuff. Now if you apply your algorithm to other group buying sites(if their archives are accessible), then we can have a nice revenue comparison tool :-)
great analysis.
I was under the assumption that they took a 50% either way its all kind of awesome
fusion tables!
Why are we assuming that Groupon takes 1/3rd of revenue from the sale? Even if they are doing that today, how can one assume that this percentage will be remain? What if competition drives Groupon’s cut to 5% of revenue?
It seems strange to estimate that Groupon will be able to take such significant cuts in perpetuity.
As stated in the post, 35% was a wild guess. I think it’s a fair one, though. Groupon right now is the Cadillac of their industry, and they are selling it as a way to gain returning customers, not just a one-time way to generate income. At the same time, the advertiser at least wants to recuperate costs of running the campaign, so 50% seemed too high considering the already steep discounts.
Hey Paul,
This is great stuff. I was just wondering where on the website you managed to get the data from?
Thanks!
Udayan, the data is from the “recent deals” pages on Groupon’s website.
Don’t forget to knock off about 3% of total sales for credit card processing fees.
The TechCrunch blog have also had a go at this here:
http://techcrunch.com/2010/05/02/teardown-groupon/
They have come out with a remarkably similar figure at $40,000, since you are both using guessed figures is pretty close. However, Groupon is still just a list with a brand so unless they can innovate in this area like Facebook did they could become a 2nd player if someone comes along who brings in more ideas.
Already people are looking make a Groupon clone and bring the concept to their country or cities. Groupon might need to expand rapidly if they want to protect their influence, brand and build revenue.
Just to let you know as a vendor who worked with groupon in the past, they average 45-50% of the deal as their commission. If they take less than 50% as their fee, Groupon charges an additional 2.5% in credit card processing fees to the vendor. I love you calculations but they are a little low.