Groupon crashes, GrabOne boss Shane Bradley says NZ different

UPDATED with comment, revenue figures from GrabOne founder Shane Bradley

Groupon shares hit a new low of $US4.64 today, giving the daily deal site a market cap of just over $US3 billion (its shares debuted at just over $US27 last year, implying a market cap around $US17 billion).

The tradtional spin against daily deal sites has been that the market is too crowded, with few barriers to new entrants, or the likes of Facebook and Google adding daily deal sidelines.

But a new survey from Slate (Ding, Dong, Daily Deals are Dead) argues that the larger problem is retailers fed up with being squeezed by Groupon demands.

The daily deal site demands goods be sold at a steep discount, then takes a 50% cut – that much is pretty well known. But Slate says merchants are also fed up with Groupon's staggered payment system, and smooth-talking promises that customers will buy extra items, and brand-building benefits.

It seems punters are more likely just to move on to the next deal (as indeed they must for the daily deal model to keep driving ahead; the only way you'll get those people back through your door is with another steep discount).

Groupon stock performance/market cap since IPO (source: S&P Capital IQ; click to zoom).

As the backlash builds, and Groupon's value sinks and sinks, Shane Bradley looks smarter and smarter.

Bradley founded GrabOne, the local equivalent to Groupon in terms of first-mover advantage and dominating the market.

In September last year, as the daily deal market hit an estimated $158 million, the GrabOne boss produced data showing his company had 65% share.

Soon after, he sold his final 25% stake to Herald publisher APN (which now owns 100% of the daily deal site).

A well-timed move, to be sure, for Mr Bradley's finances.

But who's to say GrabOne wouldn't simply go the way of Groupon.

I spoke to Bradley on that point this morning.

First up, he says $US3 billion is not a bad market cap at all for Groupon. The IPO price was over-hyped. It now has a more realistic market cap, and it is making money.

Lower commission in NZ
Second, he says while Groupon might have mistreated merchants, GrabOne gives them a fair go.

The US daily deal site's commission on sales has crept up to 40% to 50%. 

GrabOne's commission varies on the size of a deal, but is typically between 20% to 30%, Bradley says - and Groupon's NZ has been forced to follow suit.

The NZ site is also helping out merchants with online booking (so people don't have to ring up to book a service they've bought via GrabOne) and loyalty schemes to keep punters coming back to a particular store.

"I've run small businesses since leaving school," Bradley told NBR. "I try to put my self in their shoes."

$10 million/month gross revenue, squeaking into the black
Nice words, but Bradley says he also has the figures to back them up.

He says GrabOne total sales volume is now $9 million to $10 million a month in NZ (it is also operating in APN's native Australia). In September last year, Bradley said revenue was running at around $6 million a month.

Bradley refuses to comment on the bottom line, but says GrabOne is profitable "and has been since day one."

In its recently filed half year report for the six months to June 30, 2012, APN said "GrabOne New Zealand EBITDA [Earnings Before Interest, Taxes, Depreciation and Amortization] increased substantially to A$1.2m [in the first half] and is expected to double in H2."

$A1.57 million is slim earnings on six monthly revenue that would have been in the region of $NZ60 million - but that 2.16% margin makes GrabOne a hero in the wider APN group, which is bleeding red ink (overall it made a loss of $A319.4 million for the half amid write-downs of old media assets).

Pecking order
GrabOne now employs 128 in NZ, and has 75% of the local daily deal market, Bradley says (an APN filing also claims 75%, versus 60% in July last year).

He says Trade Me's Treat Me, and Groupon's NZ operation are roughly second equal, with around 10% market share each.

On the third tier is the Daily Do/Yazoom/Groupy triumvant.

Shaken out
Bradley says that is pretty much it in terms of anyone getting a decent amount of business these days.

"This time last year there were three or four [daily deal sites] starting every day in the US, and about one a fortnight in New Zealand," Bradley says.

Now, the shakeout has happened (Cudo, anybody?). Bradley thinks it has reached a stable level.

Bradley has always been very open about revenue (and given that the number of items per sale is public on daily deal sites, it's easy for them to reverse engineer each other's numbers).

Where next?
Bradley sold GrabOne to APN in tranches, progressively reducing his stake from 100% to 75%, 50%, 25% then zero.

He would not comment on the sale price [UPDATE: APN's recently released interim report says the final 25% was bought from Bradley for $A3,200,000 with a further $A6,173,000 payable should the businesses achieve certain predetermined performance targets], or how long he was contractually obliged to stay on as GrabOne CEO.

But he did add, "I've got financial incentive to say at GrabOne until the end of next year."

There are earn-out clauses in the APN deal that make it worthwhile to stay, he told NBR. And, regardless, he's having a blast.