Groupon Needs to Get Its Growth On

SEPTEMBER 13, 2011   THE WALL STREET JOURNAL

By ROLFE WINKLER

Stunning revenue growth was all Groupon had going for it. Now even that seems in jeopardy.

According to estimates from research firm Yipit Data, Groupon's revenue in North America was $121 million in August. That would be up from the monthly average of $107 million seen in the first six months of the year, but would be decidedly pedestrian next to the company's first-half growth of 96% compared with the previous six months.

And August got a $10 million boost from a new travel deals product, Groupon Getaways. Kudos for that successful launch, but it's a worrying sign that the rest of Groupon's North American business appears to be flattening out.

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Groupon did gain market share in August, but daily-deals seem like a bigger win for consumers than for investors.

Slower summer months may be having an impact, but for an initial public offering being marketed primarily for its explosive growth, a hint of seasonality at this point is itself a concern.

International is a bigger driver of revenue, representing 58% of Groupon's top line in the first half. Yipit Data doesn't track overseas markets, but one place where Groupon has faced challenges is China, where it closed over 10 offices and fired hundreds.

The story isn't all bad. Groupon gained market share in North America in August compared with top rival LivingSocial, Yipit Data reports. Meanwhile Facebook, a potentially worrisome competitor, recently shut down its daily-deals product.

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Yet, even as some competitors leave, others are emerging. While 29 daily deals websites shut down in August, another 53 popped up, Yipit says. And Amazon is expanding its own product, AmazonLocal.

Groupon still seems like a marketing machine, struggling to generate both growth and profitability. In an employee memo that leaked last month, CEO Andrew Mason tried to answer this criticism saying the company has recently shrunk its marketing budget. Yet those cuts may be one reason for a slowdown.

Daily-deals still seem a winning product, but more for consumers than investors.