Prior to Groupon’s IPO last year, I wrote a few articles that were critical of the company. In one of my articles, I noted problems with loyalty of customers and merchants:

• It’s expensive to get new customers. Sure, a large email list is nice. But how much does it cost to get people on it, and more importantly, how much does it cost to get buying customers on it?
• Only about 21% of subscribers have purchased a Groupon since January of 2009. The company has nearly 143 million subscribers, but less than 30 million of those have actually made a purchase. Worse yet, only 16 million (or 11%) are repeat customers, buying more than one Groupon since January of 2009.
• There is no proof that merchants realize a good return on their investment. The roadshow includes one merchant who loves Groupon and has good results. The company says that merchants love Groupon because it is risk free, helps merchants get large volume, and has a high ROI. Says who? A study done last year found that 32% of merchants were not profitable with their Groupon promotions, and 40% would not do a Groupon offer again.

Lo and behold, an article this week on Bloomberg’s website shows my concerns were right on point:

About half the businesses that have offered an online deal- of-the-day in the past aren’t planning to do so again in the next six months, according to a survey published on Jan. 2. The study, by Susquehanna Financial Group and daily-deal aggregator Yipit, showed that merchants were concerned about a low rate of repeat business from new customers gained through such offers.

I have also criticized the high marketing costs and the failure of the Groupon to turn that marketing into profits:

First, I compared the marketing expense per Groupon sold to the revenue per Groupon sold (numbers highlighted in blue below).  I divided the total restated marketing expense in 2010 by the number of Groupons sold, to arrive at a marketing expense of $9.39 per Groupon sold. This compares to revenue of $10.33 per Groupon sold, based on the restated financials… which means that marketing costs are 90.9% of revenue!  Groupon is barely outpacing its marketing costs for each Groupon sold. And there are many other costs in running this business.

Next, I compared the marketing expense per new customer compared to revenue per customer (numbers highlighted in yellow below), since Groupon has stated that new subscribers and new customers are a focus of the company. I divided the restated marketing expense in 2010 by the number of new customers gained in 2010, to arrive at a marketing expense of $32.85 per new customer. Compare that to restated revenue per customer of $34.65, and you realize that the prospects for this business are dim, particularly when almost all of the customers in 2010 were new customers! The company has been spending a ton of money to get new customers, with no promise that the marketing costs will go down or the revenue per customer will go up.

Additional criticism in the Bloomberg article supported my comments:

Groupon, meanwhile, has been criticized for its ballooning marketing expenses (GRPN), which have led to rising losses.

The company has more than 10,000 employees, up from 37 in June 2009. It spent $613.2 million on marketing in the first nine months of last year, resulting in a net loss of $238.1 million. Marketing costs will increase in the coming months as stores become less inclined to offer Groupons because they aren’t seeing users return, Mulpuru said.

“It’s been like a marketing blitzkrieg that’s grown the business to the size that it is,” Mulpuru said. “They were using investor money to subsidize these offers for so long. Then what merchants start recognizing is, ‘We’re just not getting new customers.’”

The price of Groupon’s stock has been dropping daily for the last week. Today it was hovering between $17 and $18, below the IPO price of $20. Is this where I say I told you so?