Group-buying sites' valuations take a dive, says researcher
The valuations of group-buying sites like Groupon have dropped precipitously owing to oversupply and lack of differentiation, says a report from CB Insights.
Hot on the heels of Google's new report from private company research firm CB Insights reveals that the multitude of daily-deal sites will continue to contract via mergers and acquisitions but the valuations of the sites will decline very quickly.this week, a
According to the report, since their peak hit just two quarters ago in Q1 2011, the Price per Subscriber and Price per Voucher Sold multiples paid in private company M&A transactions have declined 36 percent and 40 percent respectively in Q3 2011.
The decline appears to be being driven by an oversupply of daily-deal companies and increasingly negative sentiment about the space in general, thanks in part to the.
Key points from the report:
- Implied private valuations including Groupon and LivingSocial are significantly less than IPO valuations that have been speculated for the companies.
- While the technical barriers to entry in daily-deal business are low, and more companies are expected, scaling the business requires significant amounts of capital, which may prove harder to find.
- Players need to enhance their market footprint and reach to scale. M&A allows companies to fortify or target new geographies.
- An ecosystem of white-label platforms and tools for daily-deal sites has sprung up, which could help to prop up the market by making it easier for companies to analyze user behavior.
An interesting note in the report is that the majority of the M&A activity has been related to seed-stage companies that may have been "built to flip"--meaning they never had much of a business model in place, and not enough cash to outlast the larger competitors. The report also notes that investor optimism appears to have peaked and dissipated, but it remains to be seen if this is just a break in the action or a retreat in the market segment.
Obviously, this can't all be blamed on Groupon, but there is little doubt that the market for daily deals and coupons has become saturated to a point of unsustainability. And while there are some sites that have built businesses that turn over significant amounts of customer dollars, they tend to be less about coupons and more about exclusivity of discounts and artificial scarcity, such as Gilt.com and One Kings Lane.
Anecdotally, the topic of group-buying sites raises much ire among many of my friends around the Bay Area--both in relation to the volume and in what happens when you want to return a product or discount certificate that you already paid for. The truth of the matter is that no matter how much you like getting a deal on your purchases, there comes a point when managing all of the e-mail, accounts, and so forth on all of these shopping sites outweighs the benefits.
That said, there is still room for growth, provided customers remain interested in the offerings, and likely more important, businesses feel that they get value from the services.