Foreign. Google offered six billion dollars to buy the online coupon company. Groupon Groupon was just launched in 2008 and had seen explosive growth reaching 50 million users in its first two years. This made it the fastest growing company ever.

The founders turned Google's offer down as they believed the company could grow to be far bigger in the coming years. In 2011, they ipo'd for a 13 billion evaluation which made it the second largest internet IPO in history at the time. After only Google the stock surged on the first day of trading, reaching an 18 billion dollar market cap. Groupon looked set to take over the world with their ever popular Digital Coupons But since then, the company has been on a terminal decline with its number of active customers having fallen by more than 60 from the peak in Revenue declined by a shocking 80 percent Groupon's share prices declined by 99.

The company currently has a market cap of 200 million dollars less than five percent of what Google offered to buy them for 13 years ago. So what happened? How did Groupon go from the fastest growing company that even Google couldn't Buy in 2010 to the brink of bankruptcy today? Foreign was co-founded by Andrew Mason in 2008, who also took the role as Company CEO The idea of Groupon was simple digital coupons. For centuries, retailers have used coupons to entice customers. If someone receives a coupon from a local shop, they are much more likely to visit because they feel like they're getting a good deal.

Discount coupons can also help retailers clear out excess inventory and also get new customers in the door who will hopefully come back in the future and buy things at full price prior to Groupon Groupons were printed by the tens of thousands and sent to people's mailboxes as junk mail. With the widespread adoption of the Internet, there was no reason that coupons couldn't move into the digital world. That was the core idea behind. Groupon They maintained an email list where every day they send out daily deals emails.

This will give a list of digital coupons for local businesses in your area. Let's say you get a coupon for a 20 meal at a local restaurant for 50 off. you paid Groupon ten dollars to buy the coupon and use this to pay for your 20 dinner. Of the ten dollars, half of it goes to the restaurant and the other half goes to Groupon as a fee.

So for a 50 off promotion, the merchant only gets 25 of the list price. In the case of a restaurant, they would almost certainly lose money on this heavily discounted sale. But if you like the food, you'll hopefully come back and buy more food at the regular prices. Groupon Also gives coupons for services.

Take the example of a cruise ship that's about to leave, but they still have a few empty cabins since the ship is going to sail anyway. The marginal cost is negligible, so you might as well try to fill up the rooms. It looks like a great system. Local businesses get a way to connect with new customers and offload excess inventory and Groupon takes a massive 50 cut on each transaction.

They raised hundreds of millions of dollars from Venture capitalists and invested in an ambitious marketing campaign floating their airways with commercials. By the end of the first year, they had surpassed 1 million subscribers to their daily deal emails and within two years they had surpassed 50 million. This made Groupon the fastest growing company ever. The financial media idolized it as the next big unicorn of the internet age, so much so than 2010.

Less than two years after their launch, Google offered to acquire them for six billion dollars, but the founders had much greater Ambitions and decided to take the company public instead. As a content creator I Am always trying to find inspiration for new ideas. One of the best places to find inspiration is by reading books, but in today's increasingly hectic World it can be difficult to set aside a few hours of your day to read. That's why I Use Blinkist, who is also today's video sponsor.

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Start your 7 day free trial by clicking the link shown on the screen now and in the video description below. Foreign: A few major red flags were exposed even before the first day of trading. Before any company goes public, they are required to file of prospectus. The prospectus is a comprehensive document, usually hundreds of pages long, which gives prospective investors a standardized set of disclosures.

Obviously, one of the most important things investors want to know is whether or not the company is profitable in their S1 The company claimed that they generated 60 million dollars of profit in the first year, but this wasn't any profit. this was their adjusted Consolidated segment operating Income or Acsoi. If you haven't heard of Acsoi, it's because it's not a standardized accounting term. It's something that Groupon made up for themselves.

Acsoi is regular operating income with customer acquisition costs added back. This includes the hundreds of millions of dollars that they spent on their television commercials, which is what fueled their rapid subscriber growth. Using this adjustment, their 420 million dollars of Gaap operating loss in 2010 turned into a 60 million dollar profit. To be clear, they also report their regular operating income in compliance with Gap rules, so they weren't committing fraud.

Acsoi was a supplementary metric meant to put a positive spin on the fact that they were losing money. The news media quickly caught wind of this accounting gimmick and started to raise questions about Groupon's viability. Shortly after the IPO prospectus was released, the Atlantic published an article titled the Fall of Groupon Is the Daily Deal Site running out of cash? This was a major disaster for the company. People were starting to question their Financial Health right as they were gearing up for their public debut.

The situation got so bad that CEO Andrew Mason sent an email to all Groupon employees saying quote. This weekend, I did a Google News search on our company. my first in a while. The first story that popped up was called the Fall of Groupon Is the Daily Deal Site running out of cash I laughed when I read the headline.

The reason that everyone in the world seems to hate Acsoi is that it makes us look magically profitable by subtracting a bunch of our customer acquisition marketing costs from our expenses. The reason we didn't realize everyone in the world would hate Acsoi is that we think it actually does a pretty good good job at describing our marketing expenses in a steady state. We just didn't realize there would be so many Skeptics if I'm a Johnson and I'm trying to sell you a box of Band-Aids I have to keep spending money on commercials and magazine ads and stuff to remind you about how sweet Band-Aids are. even after you've bought your first box with Groupon we just spend money one time to get you on our email list.

There is no cost of reacquisition. That's unusual and we created Acsoi to point that out. Unquote. The idea is that Groupon spends hundreds of millions of dollars on Advertising Tried to convince people to sign up for their mailing list.

Once someone signs up for the email list, they will continue using Groupon There will thus be no need to advertise to them again. The hundreds of millions of dollars that they spent on Advertising should be considered as an investment, not an expense by removing advertising expenses. Groupon was able to turn their operating loss into an adjusted profit, which they thought would benefit their valuation in their upcoming IPO. This concept assumes that once a customer signs up for the Groupon email list, they will continue buying deals indefinitely.

This is obvious, basically an absurd assumption, as any company always has some level of a customer attrition. In light of all the criticism: Groupon removed adjusted Consolidated segment operating profit from its prospectus and continued ahead with its planned IPO Investors were unfazed by Groupon's lack of profitability and gave the company an 18 billion valuation on the first day of trading. This made it the second biggest. Tech IBO Only after Google everything was looking good.

having raised 700 million dollars from the IPO Groupon was on track to pump more money into their advertising budget and accelerate their growth rate even faster. Yeah, despite the company's impressive Revenue growth in the early days, Groupon has always struggled with profitability. That's because they had to employ thousands of salespeople to call up local merchants and hundreds of copywriters to write the text of the daily deal emails. At the heart of Groupon's operations was its call center, which was divided into two essential components: sales and content creation.

Thousands of sales representatives formed the backbone of the company, aggressively reaching out to local businesses to explain the benefits of partnering with. Groupon. Their pitch emphasized how Groupon could serve as a catalyst in attracting a fresh consumer base. They also acted as consultants, providing insights and recommendations on how to structure attractive deals.

Once a merchant was onboarded, Groupon's Army of copywriters stepped in. These individuals were tasked with crafting engaging and enticing techs for their daily deal emails. The business model itself posed a significant challenge for merchants. With Groupon taking an enormous 50 cut of the revenue generated through the deals.

Most offers were essentially lost leaders for the businesses. The strategy behind Merchants partnering with Groupon was generally to attract new customers in the hopes of converting them into loyal patrons. Once a customer was acquired, Merchants would often ask for their email address themselves. This way they could send them Digital Coupons directly instead of paying the 50.

Groupon V The Steep fees made Groupon an untenable partner for the long term. This High churn rate meant that Groupon had to consistently replenish its pool of merchants. Consequently, sales representatives were under constant pressure to onboard new businesses, resulting in an endless cycle that was both cost intensive and inefficient. Groupon was the fastest growing company ever, but this growth was a result of an unsustainably expensive advertising campaign and unsustainably high fees charged to their Merchants.

Another headwind was the rise of digital advertising platforms such as Google and Facebook. Small businesses gradually realized that's far cheaper to pay a couple cents per impression with a Facebook ad campaign than to pay a 50 commission to Groupon. We can see this in the financial results. In the first five years of operation.

Groupon saw its Revenue Skyrocket to an impressive three billion dollars. Despite this, they barely broke even, inking out only a tiny operating profit in 2012, 2013, and 2014.. this is because as the business grew, they had to keep hiring more and more sales people and copywriters. By the mid-2010s Groupon had all but burned through all the potential merchants in their markets.

After losing money on their first group on campaign, most Merchants were not interested in trying again. This caused the quantity and quality of their daily deals to decrease substantially. Since 2017, Groupon's number of active Shoppers has declined at first slowly and then rapidly. This had a catastrophic effect on Revenue which declined by 80 from 3 billion in 2014 to 600 million dollars in 2022.

with revenue and subscriber numbers tanking Groupon went through multiple CEOs who each attempted to implement a turnaround. All the turnaround attempts failed and the company continued its terminal decline at the end of the day. There's really no reason for Groupon to exist anymore. It's too expensive and small businesses have more efficient ways to advertise.

The company is still operating today day, but they're losing money and are on track to run out of cash within the next year. A sad fate for what at one time was the fastest growing company ever. Alright guys, that wraps it up for this video. what do you think about Groupon Let us know in the comments section below.

As always, thank you so much for watching and we'll see you in the next one! Wall Street Millennial Signing out.