Investors concerned about Groupon Inc.'s accounting methods have a new metric to worry about: direct revenue.
Along with deals on restaurant meals and spa treatments, the Chicago-based discounter has been increasingly selling goods that it buys directly from manufacturers like earrings and heart-rate monitor watches. (CEO Andrew Mason even touted a $15 artisan yogurt maker sale on Monday.)
Groupon broke out the results for the segment for the first time on Monday because it was the first quarter they were big enough to make a material difference. In the second quarter through June, direct revenue came to $65.4 million, up from $19.2 million in the first quarter. That accounted for 11.5 percent of all revenue.
Analysts note that the business of selling goods directly is less profitable than the deals business. They are also concerned about the use of different accounting standards.
Groupon accounts for the full price of a direct sale as revenue, as opposed to its core deal business, which only counts revenue received from vendor. That could cause direct revenues to grow much faster than the core deals business, despite being less profitable.
Chief Financial Officer Jason Child addressed the question.
QUESTION: In terms of direct revenue, can you give us a sense of what the gross margins look like on the direct revenue piece and are you guys economically indifferent between third party versus direct revenue or do you think the customer experience and shipping times factor into the thought process in terms of how you optimize the economics?
RESPONSE: So on the gross margin on direct revenue, we don't provide that. It does differ by channel and as I mentioned there is travel deals, there is movie tickets, there is physical goods and Groupon Goods. We don't break out the channels because those are very, very competitive industries. We don't provide the margins. I will say, after having at least spent a fair amount of time in e-commerce, we are very happy with the margins that we have in those categories along with, of course, with the growth that we've seen.
I think you asked, do we have a preference? And I think, in general, we did not have the infrastructure to be able to actually take title to inventory and then be able to control the customer experience from being able to really control price as well as to control the quantity that we can purchase and therefore the amount that we can sell. And then, of course, ensuring that shipping cycle time that we think provides the right customer experience. And so, we'd certainly like to control those aspects as much as possible ... .
If there is not going to be economic benefit and ability to improve the customer experience, then we're not going take title to it.
So, we try to manage it on what's, first, right for the customer and then, second, is there an ability for the merchant to be able to sell on their own or not? So, those are the considerations we take. Ultimately, I think as I said before, we are really optimized for overall margin and profit dollars and cash flow dollars. And so we are not just worried about what the margin percentages are, but we are trying to optimize total dollar per kind of transaction and per site visit.
- direct revenue