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Sharespost Groupon Research Report

Sharespost Groupon Research Report

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Published by TechCrunch
Research report on Groupon
Research report on Groupon

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Published by: TechCrunch on Feb 03, 2011
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Created:
02-01-11
Authored by:
neXtup
 
RESEARCH REPORT
This report has been downloaded from SharesPost, Inc., but was prepared by Global Silicon Valley Partners under the neXtupResearch brand ("neXtup Research"), and any opinions contained herein are solely the opinions of Next Up Research. Informationcontained herein, including but not limited to research, valuations, calculations, estimates and any other material or sources, isbelieved to be reliable, however its accuracy and completeness is not warranted or guaranteed, and past performance is notindicative of future results. These materials are provided for informational purposes only and should not be used or construed asan offer to sell or a solicitation of an offer to buy any security. SharesPost, Inc. is not acting as nor is it registered as an investmentadviser.
 
 
Investment HighlightsLeader in local deals market:
With over 50M totalsubscribers across over 300 cities in more than 40countries, Groupon is the largest player in the localdeals market. The company, a pure play on the localdeals segment, is poised to grow at a CAGR of 20%from 2011 to 2015, in our estimate.
Highly Suitable for businesses where customeracquisition cost is very high,
high fixed costbusinesses and businesses which thrive on repeatcustomers.
Groupon raised $950M in Series G funding inDecember 2010
at a post money valuation of$4.75B from DST Global, T.Rowe Price, CapitalGroup, Morgan Stanley, Andreessen Horowitz,Battery Ventures, Greylock Partners, Kleiner PerkinsCaufield & Byers and Silver Lake.
 Valuation:
We have used two methods: a) steady-state target EV/Revenue multiple, and b)comparative EV/Revenue multiple based on a peergroup to arrive at a market cap of $5.95 - $6.07B forGroupon, and an estimated price per share of$39.41 - $40.20 for common shares.
Investment Concerns
 
Low barriers to Entry:
 

market are low and switching costs for consumers and local businesses is low.
 Local businesses have to figure out the economics of the deals:
In some cases, local businesseshave offered deals in which there was no cap on the number of subscribers, the deal becameoversubscribed, and the local business suffered huge losses.
Low Consumer Retention:
Local business offering deals through Groupon have a low repeat consumerpercentage of 20%.
 Groupon 40%- 50% revenue sharing arrangement
with local businesses is
not sustainable
in the long

 
February 1, 2011
Media:
Groupon
Company Information
 
Founded:
2008
 Headquarters:
Chicago, IL
 Total Funding:
$1.12B
 Investors:
New Enterprise Associates, AccelPartners, DST Global, Battery Ventures, CapitalGroup, Andreessen Horowitz, Greylock Partners,Kleiner Perkins Caufield & Byers
 CEO:COO:CFO:
Andrew MasonRob SolomanJason Child
neXtup Estimates (details on page 40)Estimated Share Price
 
$39.41 - $40.20
 
Estimated Market Cap
 
$5.95B - $6.07B
 
 
 
Important disclosures on page 592
INVESTMENT THESIS
Leader in Local Deals Market
With over 50M total subscribers across over 300 cities in more than 40 countries, Groupon is the largestplayer in the local deals market. The company, a pure-play on the local deals segment, is poised to growat a CAGR of 20% from 2011 to 2015, in our estimate. The growth in the future is likely to be at a slowerpace, primarily because the company is already one of the largest in the local deals space. The localdeals segment, mostly aided by new entrants, should grow at 20% from 2011 to 2015.
Exhibit 1: Growth of Groupon v/s Growth of LivingSocial
Source: Company reports & neXtup Research 
 
Win-Win Proposition for Both Local Businesses and Consumers

of the 300 local markets thereby guaranteeing revenue andlarge number of new customers for local businesses. Local businesses do not have to pay upfront feesand need to share revenue with Groupon only if the deal achieves the minimum subscription.. Groupon
050100150200250300350
   M  a  r  -   0   9   A  p  r  -   0   9   M  a  y  -   0   9   J  u  n  -   0   9   J  u   l  -   0   9   A  u  g  -   0   9   S  e  p  -   0   9   O  c   t  -   0   9   N  o  v  -   0   9   D  e  c  -   0   9   J  a  n  -   1   0   F  e   b  -   1   0   M  a  r  -   1   0   A  p  r  -   1   0   M  a  y  -   1   0   J  u  n  -   1   0   J  u   l  -   1   0   A  u  g  -   1   0   S  e  p  -   1   0   O  c   t  -   1   0   N  o  v  -   1   0   D  e  c  -   1   0
LivingSocialGrouponGroupon Expansioninto Europe -CityDealAcquisitionGrouponExpansionin toLatin America -ClanDecuento Acquisition
Number
of Cities

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