The largest Internet IPO since Google has come and gone. The excitement has dwindled; the champagne bottles have been re-corked. And perhaps Groupon’s famously quirky CEO has been humbled since, after all, he is now playing with the big boys.
With a fresh new accountability to its shareholders resting firmly upon its shoulders, Groupon recently divulged the details of its first quarter earnings as a public company. The sobering news? The online coupon leader posted a fourth-quarter loss of around $43 million on sales of $507 million.
Groupon’s shares immediately plunged by 11 percent once the results were announced. Investors seemed to ignore the high revenue number and focused solely on the net loss, an Achilles’ heel that has plagued Groupon since its inception and tarnished its almost superhuman growth potential. Even untrained business writers know that a company simply cannot survive after consistently reporting net losses (it was in the hole for almost $400 million for the year 2010).
So what’s the excuse for the net loss this time? Unlike most of its competitors, Groupon’s might lies within its overarching international reach. Although it has its eye fixed on local merchants and consumers, it promotes daily deals in 47 countries. The company cites high international tax rates as the reason for its surprising tax expense of $34.8 million during the fourth quarter. Groupon also attributes the high costs involved in growing its engineering and product development teams as other reasons for the loss.
Still, extremely young Groupon obviously has time to get out of the red and convince investors profitability is right around the corner. It has achieved shocking growth in a short burst of time. Its first year revenues were just $94,000 (it didn’t have a full year of operations until 2009), but that figure jumped enormously to $713 million for 2010. Unfortunately, the company spent more than $260 million in marketing promoting its service in 2010, which undoubtedly ate into its profits.
Groupon has already experienced explosive growth in the buying of coupons through mobile devices, and it is installing its mobile platform with pre-installed merchant applications, which help to track redemption as well as gather data about overspend.
In the midst of the recent net loss and the stock decline, CEO Andrew Mason remarked:
“Groupon has gone from zero to where it is in three years. It’s been called the fastest growing company ever … at this point, when we think of the competitive landscape, we think that the biggest competitors are ourselves.”
Okay maybe that famously quirky CEO is still a little feisty.