Companies

Gaopeng has a profit margin edge

By Chen Limin (China Daily)
Updated: 2011-06-11 09:41

Gaopeng's webpage magnified. Group-buying websites started springing up in China in March 2010 and the number of operators had jumped to 1,880 by the end of last year. [Photo/China Daily]

BEIJING - The Chinese joint venture of Groupon Inc has a gross profit margin higher than the industry average, said a company official.

The revelation comes amid fierce competition and a price war among the more-than-1,000 group-buying websites in China.

Ouyang Yun, the chief executive officer of Beijing GaoPengTuan Technology Ltd (Gaopeng), said the company's gross margin is "much higher" than 10 percent. The industry average is about 5 to 6 percent, according to analysts. Gaopeng is a joint venture owned by Groupon, the Internet conglomerate Tencent Holdings Ltd, and Yunfeng Capital, a venture-capital fund.

Ouyang made the comments on Friday as Groupon's Chief Executive Officer, Andrew Mason, was visiting China, the world's largest Internet market. Groupon is facing questions from analysts about its profitability because its growth-momentum has slowed.

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Groupon lost $146 million in the first quarter of 2011 because its marketing expenses largely surpassed revenue. Its sales rose 14-fold but marketing costs rocketed 50-fold in the first quarter of this year, compared with the same period in 2010.

Its Chinese joint venture is facing a similar quandary, but Ouyang said he "is confident that this will soon pass and such a situation is natural for any company at the very beginning".

Group-buying websites began springing up in China in March 2010. The number jumped rapidly from a small number of operators to 1,880 by the end of last year, driven by the country's e-commerce boom, according to the China e-Business Research Center.

Many companies accept a very low gross profit margin from each deal, as they attempt to pressurize competitors and gain the upper hand in the market, said Chen Shousong, an analyst with domestic research company Analysys International.

"Companies are burning their money to squeeze others, but the situation may improve later this year because an increasing number of less-competitive group-buying websites have fallen behind," he said.

According to the researcher, Analysys International, the group-buying websites 55tuan.com, Lashou.com, Meituan.com and Nuomi.com are the current leaders in overall competitiveness.

Ouyang said that Groupon has been giving support to Gaopeng in terms of technology and management. The joint venture may also introduce "Groupon Now", a service Groupon has already launched in the United States that recommends coupons to consumers based on location, if it gains a good reception in the US.

However, Ouyang doesn't expect the company to turn a profit any time soon.

The company is also considering a stock market listing, following Groupon, which plans to raise $750 million in an initial public offering. However, the Chinese company doesn't have a schedule for that yet, Ouyang said.

Gaopeng now offers deals in 30 Chinese cities and since going online in February, it has established operations in 50 nationwide.