How Does LivingSocial Fit into Groupon’s Strategy?



LivingSocial to add 1.0 million customers

Groupon (GRPN) is acquiring fellow daily deals provider LivingSocial for an undisclosed amount of money. But there is no secret why Groupon is interested in LivingSocial. Since Groupon’s aggressive international expansion failed to yield the expected benefits, its new strategy is to focus on dominating the North American daily deals market.

LivingSocial fits into that strategy. But what impact it could have on Groupon’s growth is everyone’s guess at this point. Groupon’s CEO (chief executive officer) Rich Williams said the company expects LivingSocial to add ~1.0 million new active customers, perhaps boosting sales for the platform. Groupon added 1.2 million customers in North America in 3Q16, raising its customer base to 29.1 million.

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Buying ahead of the busy holiday season

The above graph shows Groupon’s subscribers in the last five quarters.

Although it’s not clear how much Groupon paid to acquire LivingSocial, we do know that LivingSocial was once valued at $1.0 billion. But its valuation has recently fallen significantly. Groupon hopes that acquiring LivingSocial will give it a better chance to appeal to holiday shoppers and drive up its sales.

Groupon’s daily deals business suffered a setback when Alphabet’s (GOOGL) Google introduced a system that separated primary emails from promotions and social emails. The rate of opening Groupon deals fell sharply. As part of its new strategy, the company has been redirecting its focus to e-commerce rather than just daily deals.

Amazon involvement

Amazon (AMZN) once invested in LivingSocial. Amazon pumped ~$200.0 million into the business but walked away when things didn’t seem to work for daily push deals providers.

3Q16 earnings

Groupon, which is competing for shoppers’ attention against eBay (EBAY), Nordstrom (JWN), and others, posted a loss of $38.0 million in 3Q16. That’s more than its loss of $27.6 million a year earlier. But revenue of $720.5 million rose 1.0% year-over-year.


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