Much has been said this week about Groupon’s IPO plans, and the fact their financials are now exposed for us to see. Several people suggested that Groupon is a giant ponzi scheme, others suggested they were effectively insolvent, yet others have remained positive about the deal. Unfortunately for us, Groupon cannot answer directly to any of these questions as they are stuck in the SEC quiet period. So since everyone else seems to have an opinion, I figured I’d share mine.

So what do we know so far, Groupon has raised INSANE amounts of capital, this is very true. Groupon founders and early investors have already taken MILLIONS off the table, this is also true. They are burning more cash than they are bringing in, yeah, but wouldn’t be the first time a company has done this (especially internet startups).

The key things to look at are the following:

  • They have 80 MILLION subscribers to their newsletters/offer emails.
  • Only 20% of those subscribers have bought something.
  • They have 56,000 merchants signed up.
  • They have 8,000 employees
  • Customer acquisition costs are rising.
  • Per customer revenue is decreasing.

So what do we know, they have a TON of opportunity left in this tank. They have 64 Million subscribers who have yet to buy something. Why not? They need more offers, or better targeted offers. Well that’s why they have 8000 employees. These sales people can now go through the lists of merchants in their database and upsell them, push instant deals (Groupon Now) and other offers. They can also start recruiting more efficiently than before. I’d be shocked if they don’t hit 100k merchants by the end of the year.

Think of the ways they can leverage these customers:

  • segmenting their list granularly (ultra targeting offers)
  • expanding into loyalty programs (logical step)
  • expansion into travel (via expedia deal)
  • national deals with CPG companies (think vouchers for Tide at any store)
  • time and product sensitive offers (push people at slow times to stores)

So why am I bullish on Groupon? I don’t look at the $1-2Billion they are making already (in gross), but rather the 10-15Billion they haven’t tapped yet. They admittedly have a smaller market than google, but I think they can be a $20B market cap company in a year or three. They could be easily making more money from their existing customers if they refine and improve their product. Including an incentive to the customer friends for referrals could also reduce their customer acquisition costs (they have the referral $5 now, but on a per deal basis could be further emphasized).