Bad Deal For Deadbeats: Groupon Weeding Out Weakest Workers

Groupon cutting workersDaily deals site Groupon created its own niche in 2009. It was a nifty idea: local businesses would offer huge discounts to lure in new customers, internet prowlers would nab a basic ballroom class ($15), a sake tasting ($19), or a one-hour facial ($35), and Groupon would take a cut for brokering the deal. But now Groupon is taking another cut -- to 10 percent of its workforce.

The company is launching a performance review process to replace the weakest of its 4,853 salespeople worldwide. "Groupon does not have layoffs planned," spokeswoman Julie Mossler said in a statement. The company is simply "managing out" the lowest performers, a practice "common among the most efficient sales organizations."

A showing of efficiency is key for Groupon right now, which has its initial public offering on Nov. 3. Founder and CEO Andrew Mason announced the cuts at a presentation in Boston on Wednesday, part of Groupon's roadshow to talk up the company to some of the country's biggest portfolio managers, stockbrokers and hedge fund managers.

Groupon is seeking a valuation of as much as $11.4 billion, reports Bloomberg News. That's less than half the valuation it received in June, but would still make it one of the most expensive companies -- relative to sales -- in the tech world.

The valuation is around five times Groupon's next year sales estimates of $2.1 billion. trades at 1.5 times its projected 2012 revenue, and Microsoft 2.9 times.

Some investors are skeptical of the valuation. Groupon, after all, has never turned a net profit, and in fact lost money over the past nine months. Critics also hassled the Chicago-based company this summer for a particular accounting metric, which excluded Groupon's unusually high online marketing expenses. It was eventually dropped.

Groupon in many ways paved the social buying space, and became a phenom of e-commerce. Its revenue for the first half of 2011 was $1.5 billion, up from $131.5 million over the same period the year before. But Groupon's success has spawned a lot of copycats, which many investors fear will dilute the company's long-term value.

Google Offers poses a particularly stiff form of competition. Groupon famously rebuffed Google's $6 billion offer back in late 2010, leading the search giant to launch its own daily deals site earlier this year, which is still aggressively expanding. Google Offers bought German Groupon clone in September, and recently partnered with 14 other coupon sites to expand its offerings.

Investors are also concerned that Groupon is trying to inflate its valuation by selling fewer shares of its IPO -- 4.7 percent -- than any other U.S. Internet company in the past decade.

Groupon nevertheless defends its valuation, and considers its market lead secure. Mason sent an internal memo in August rebuking the naysayers, arguing that "it's kind of hard to build a Groupon," and pointing out that it is 4½ times the size of Google Offers, five times the size of Yelp Deals, and three times the size of LivingSocial.

"If there's a silver lining," he writes, "it's that we're almost on the other side, and the negativity leaves us well-positioned to exceed expectations with an IPO baby that, having seen the ultrasound, I can promise you is not one of those uglies."

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