What I remember most vividly was trying to come up with a good name. LivingSocial was starting to get traction and we wanted to differentiate ourselves from them. The conversation went like:
Boss: What's the opposite of LivingSocial?
Me: I dunno, DyingAlone?Many small businesses don't adhere to professional norms of communication, negotiation, payment, etc -- that's not a big surprise, considering that many of them are owned by people without a lot of background in big business. The amount of time put into each deal is very high compared to the money you can get out of it.
This is why enterprise sales are so much easier than small business sales. You can make millions dealing with a small handful of enterprise companies, or you can try to make the same amount of money by dealing with hundreds or thousands of small businesses.
This implies that an unlimited number of people could have started profitable Groupon-like businesses.
Given all the stories that were going around for a long time about how offering through businesses like this was a losing proposition for most customers (really independent of the truth of those stories), I'm not surprised that there could be trouble making a profit in it.
As I recall, the standard deal with Groupon etc is 50% off retail price, then Groupon (or whoever) takes 50% of what's left.
So consider a product or service you usually sell for $100, which costs you $40 to deliver. When doing one of these deals, you're now selling it for $50. You get $25 of that, and the platform operator keeps the other $25. So your cost of sales was $40 and your revenues were $25.
Fine if you're happy to operate a loss-leader to attract quality clients who will return to you at full price later.
Unfortunately it seems that these daily-deal services often attract low-quality leads to your business. The kind of customer who exhibits no loyalty, and simply surfs from company to company taking advantage of these loss-leader deals, then never returning.
>The incentive to bring new customers by offering steep discounts is definitely worth it for those type of vendors.
But, it sounds like you either a.) Kept getting steep discounts with multiple Groupons for the same dentist or b.) Kept hopping to whichever dentist was offering a steeply discounted Groupon.
Neither of these is good for the dentists.
Or did I miss the sarcasm?
For a company of Groupon's size ($3B annual revenue), that doesn't necessarily mean that it was free, right?
That leaves a lot of legal wiggle room.
1) acquired assets / groupon total assets
2) acquiree pre tax income / groupon pre tax income
3) purchase price / total assets
Groupon has 1.7B in total assets. By looking at criteria 3, this means the purchase would have been at maximum 20% (340M - Wont get into reasons why we use 20%, but this is the ceiling) or less.
The price was likely in the 20-75M range, if living social contributed to less than 10% of the net loss of groupon (100M), and their assets were under 50M (likely).
As someone who went to both IPO lunches, it was a wild time. Throw Renren, and several other companies from that time period into the mix. 2012 was almost 5 years ago. Unbelievable. Well, at least tech companies actually did go public.
"On October 24, 2016, Groupon entered into an agreement to acquire all of the outstanding shares of LivingSocial, Inc. The acquisition is expected to close by early November 2016, subject to satisfaction of customary closing conditions. The acquisition consideration is not material."
For those comments questioning the "not material" part. I agree this looks like a potential legit issue: The price paid is probably somewhere in the 8 figures. But regardless of price, Groupon is a small company that doesn't make any money (they just announced they lost $36 million last quarter alone), so even a small purchase price, not to mention LivingSocial's future expenses, can be very material.
But more important than a debate over acquisition details and what is "material": Groupon management have been accused in multiple different lawsuits in recent years for making untrue statements or omissions of material facts. And they lose/settle for millions of dollars.
Innocent until proven guilty but if one reads further down to management's "Outlook" section of the press release it is very odd to see LivingSocial mentioned here:
"Outlook: Groupon's outlook for 2016 reflects current foreign exchange rates, as well as expected marketing investments, stabilizing trends in Shopping, the acquisition of LivingSocial, potential disruption related to country exits...Groupon is raising its revenue guidance range...and narrowing its expected 2016 Adjusted EBITDA range to between $150mm and $165mm"
If something is not material then how or why is it one of 6 things listed as reflected in the company's outlook??? Why even bring it up again?
Things that have an effect or get reflected in a company's outlook and guidance is material. Even in the most generous definition of material this is material.
I am not saying Groupon needed to disclose price paid or give a full biz synergy plan. But what is LivingSocial? Is it a going concern? Is this accretive or dilutive? Asset or liability?
This acquisition deserves more information than was provided and should not have been labeled as "not material". The stock's AH 10% drop feels very material to investors.
Groupon's 3Q2016 Press Release: http://investor.groupon.com/releasedetail.cfm?releaseid=9956...