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Can Groupon Really Reduce Its Marketing Costs?

Groupon
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Groupon

The most surprising thing about Groupon is not how much money it has lost. It’s that it expects investors to ignore the losses.

The company’s IPO filing revealed a loss of $413.4 million last year.

In the first quarter of this year, the company lost $114 million.

Groupon’s marketing costs account for a large share of these losses.

The company spent $180 million in the first quarter attracting new subscribers.

Groupon says that investors shouldn’t worry too much about these sky-high marketing costs. According to the company, it won’t go on spending like this forever.

“Over time, as our business continues to scale and we become more established in a greater percentage of our markets, we expect that our marketing expense will decrease as a percentage of revenue,” Groupon said in its IPO prospectus.

I’m not sure I buy this expectation. Groupon needs more than email addresses to work as a business—it needs engagement. If subscribers stop using Groupon’s offerings or stop opening Groupon emails, Groupon won’t make money. This means that Groupon may find it needs to keep up its marketing spending just to keep its subscribers engaged.

Competition could also force Groupon to keep marketing spending up.

Google, Facebook, and Amazon are all eyeing the space that Groupon has largely had to itself. Customers getting offered deals every time they check their Facebook page may be less inclined to open their Groupon emails.

None of this, however, is likely to give investors pause. Everyone, it seems, wants in on this deal.

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