Disclosure: I am a partner in a coworking space, SwitchCube, which will shortly be running a Groupon campaign.

Groupon reported its fourth quarter 2012 earnings today almost exactly where analysts had expected: With $638 million in revenue, up 30 percent over last year.

The problem was that analysts wanted a profit.

“Record billings growth this quarter is a clear signal that customers love Groupons,” said CEO of Groupon Andrew Mason, focusing on the positive. “We will continue to invest in growth through 2013 as we see new opportunities to give our customers what they want.”

But while analysts had expected Groupon to earn $638 million and the company did almost exactly that, they also expected Groupon to make $0.03 per share of profit. Instead, the company lost 12 cents per share, posting a loss of $12.9 million, up from 2011′s $15 million but not yet in the black.

Source: Google Finance

Groupon shares fall like a rock in after-hours trading.

And while billings were up 24 percent to $1.52 billion in the quarter, and 35 percent to $5.38 billion for the full year, operating cash flow decreased 61 percent year-over-year to $65.7 million, and free cash flow decreased 83 percent year-over-year to $25.7 million.

Last quarter was a disaster for Groupon, driving its stock down nearly 20 percent on missed revenue and poor international performance, although it had grown subscribers 37 percent year-over-year to 200 million. This quarter is looking much the same for the Chicago-based daily deals frontrunner.

The sad part if you’re a Groupon shareholder?

There’s a lot that’s going right in Groupon’s market. The company’s active customer count hit 41 million, up 22 percent. Groupon Goods, the high-flying physical goods part of the company’s business, is still growing and now at an annual run rate of $2 billion. Active deals in North America were up 300 percent to almost 37,000. Mobile is booming for Groupon, with nearly half of its transactions happening via mobile devices in January, up 44 percent from January 2012. Total Groupons sold were up 21 percent year-over-year in Q4, and 19 percent quarter-over-quarter.

And yet, there is this oddly desirable quality of successful businesses that Groupon lacks: profitability.

Source: Groupon

Groupon Q4 2012 financials

I’m no financial genius, but I’m guessing the graphic below tells the story. Groupon’s cost of revenue has increased every quarter for over a year, from 20 percent of revenue in the fourth quarter of 2011 to 32 percent in the third quarter of 2012 and a massive jump to 44 percent in this most recent quarter. While marketing costs have steadily gone down, rising cost of revenue numbers like these are not going to make investors happy.

Source: Groupon

Groupon’s cost of revenue.

Image credit: Groupon

The now 10-year-old and extremely well-capitalized startup is one of the largest online retailers of home goods and furnishings, with a selection of more than five million products. Daily Fair will feature seven new sales a day, seven days a week, which will each last for 72 hours — and offer up to 70 percent off.

Flash sale sites took off in 2012, offering an exciting new e-commerce business model that attracted millions of consumers, millions of dollars in revenue, and millions of dollars in venture capital. Zulily and One King’s Lane raised $85 million and $50 million, respectively, from big name investors, and Rue La La, Gilt, and Fab.com have large, active, and spending user bases.

Wayfair’s new feature is not just an attempt to hop on the trend wagon — it’s  the latest step in Wayfair’s quest to be definite online destination for home goods. During an interview with VentureBeat, founder and CEO Niraj Shah said that e-commerce only makes up 6 percent to 10 percent of total retail sales for home goods — and this number is going up.

“Most people don’t buy home goods until they are 30 years old and have a house or are married with kids.” Shah said. “The group that is at this stage in their life now is the first to grow up with the internet, so their willingness to buy online is high compared to other folks and it goes up every year. E-commerce keeps on getting better and better and people feel more comfortable making purchases online. We want people to start by looking here, because we have everything. There is a pretty big opening here and we are going to run with it.”

Convenience is also a key factor here. Many people (present company included) don’t want to dedicate their nights or weekends to furniture shopping. With online ordering, consumers can peruse multiple options, make comparisons, and have purchases delivered to their door without schlepping from place to place.

The flash sale feature is intended to add an additional layer of convenience, as well as attract a different category of user. Wayfair’s massive selection can be overwhelming, and flash sales are appealing to people who don’t want to hunt for a specific item.

Wayfair claims to be the first mass retailer to integrate daily flash sales into its business model. The promotion will go out at noon each day, and will feature products linked by theme or category, as well as a selection curated by bloggers, designers, and other “influencers from the home community.”

Shah founded Wayfair back in 2002, long before e-commerce was as mainstream as it is now. Back then, it was an amalgamation of small, item-specific sites that in 2011 became an integrated entity known as Wayfair. To support this transition, the company took institutional money for the first time and has raised more than $200 million to support its growth. Wayfair broke $600 million in sales in 2012 and sees over 12 million visitors a month. This success is largely due to focusing on customer needs and the overall user experience.

“People want their homes to be unique and feel personal,” he said. “They want a very big selection so they can find the exact thing they want at a good price, and ‘best-sellers’ aren’t really a priority. You can’t inventory everything in a warehouse and turn the inventory. We amassed the selection all-in-one place by working with 5,000 different manufacturers, and then build the supply chain and transportation delivery network to deliver it to the customer.”

Competitors include traditional retailers like Target, Sears, and Pottery Barn as well as e-commerce giant Amazon. The “home goods” sector includes everything from extremely expensive designer couches to cheap lighting, and Wayfair attempts to bring it all together under one digital roof. The main challenge left? Building any furniture that comes unassembled. But at least there are other services for that.

The online marketplace for pet food, pet toys, and everything but the pets themselves pulled in hundreds of millions of dollars of venture capital in 1988, IPO’d in 2000, bought a Super Bowl ad in January of that year, and shuttered the company in November.

Perhaps the company was just 12 years early.

I’ve been seeing a lot of pitches for dog and cat product startups lately, including DoggyLoot, a daily deal site for chews, toys, and treats for dogs. The company says that 4 percent of pet products are sold online today, with a 12 percent annual growth rate.

With $2 million in venture funding from Sandbox Venture Fund, hundreds of thousands of subscribers, and several million in revenue in just its first year (which is probably more than Pets.com in all its ill-fated history) the company may just be proving that now is finally the time for pet sales online.

It helps that DoggyLoot is not focused on food, which is heavy and costly to ship. According to data the company assembled, more than three-quarters of dog owners have made online purchases, mostly of toys, medicines, and accessories or toys. Those are higher value and higher margin products which ship easily and efficiently.

The company put together an infographic showing the state of the industry, at least so far as dogs are concerned:

photo credit: Sebastián-Dario via photo pin cc

Imagine you’re a recruiter or a hiring manager in a growing company. Every morning you get a daily deal email…but it’s not for a half-price massage or $5 off a $10 purchase at your local cafe. And there’s none of sort-of-almost-witty commentary either.

Instead, the email contains five qualified job seekers in your area. And if you like any of their profiles, you can instantly view their video introduction, resume, and letters of recommendation.

Sounds pretty good?

That’s exactly what GetHired is doing, starting today in New York and expanding to other major cities across the U.S. by the end of the year. VentureBeat interviewed Allison VanNest of GetHired yesterday.

“Job seekers are discouraged because they feel that their resumes are falling into a ‘black hole’ and they are not getting any feedback from hiring managers,” VanNest said. “Hiring managers, on the other hand, are being inundated with resumes; they are looking for a way to pinpoint top talent quickly and cost-effectively.”

The new daily deal approach will help top talent stand out, according to GetHired. And says CEO Suki Shah, “employers are able to find the best candidates in a fraction of the time.”

There’s an incredible amount of innovation and investment happening in the recruiting space this year — in the past months I have featured Quixey, a company that gamifies recruiting; Wowzer, which uses video in innovative ways to help companies manage candidates; and enRecruit, which also uses video to help companies find the best talent.

GetHired is, at the very minimum, taking a new tack.

The company made Entrepreneur’s 2012 list of “brilliant companies” and was a finalist in the human resources–focused HRO Today’s iTalent Competition.

GetHired is based in Palo Alto and has raised $1.75 million in initial investments from a variety of angel investors, including John Suh, CEO of LegalZoom.com; Ralph Mack of Mack Capital, and Jeffrey Leonard, chief executive at the Global Environment Fund.

It has 14 employees and was founded January 30.

Image credit: deal bag/ShutterStock

One segment in particular has it rough: appointment-based businesses like hair salons and massage therapists. More than 45 percent of daily deals conducted in 2010 were by appointment-based businesses, according to online appointment scheduling company Schedulicity.

These businesses typically get a trickle of calls on a given day, but add a daily deal blast to thousands of inboxes and, well, it isn’t pretty. Bozeman, Montana-based Schedulicity has set out to solve two major problems for appointment-based businesses running daily deals.

“First, the merchants will get hammered with 150 phone calls, and they typically have only one person – the business owner – answering,” says David Galvan, president of Schedulicity during an interview with VentureBeat. (He’s the the guy on the left in the photo above.) “Second, the people calling want an appointment immediately and in the next couple of days. Small, appointment-based businesses just aren’t ready to handle that volume and demand.”

Today Schedulicity is launching Deal Manager, a service that automatically merges a daily deal provider’s calendar with the merchant’s calendar to fulfill the daily deal. Deal Manager allows small businesses to do what these daily deals are supposed to do: arbitrage excess inventory.

Deal Manager defines the maximum number of appointments generated during a daily deal promotion and sets the number of promotional appointments available each day of the daily deal.

Of course, scheduling isn’t the only problem with daily deals. A 2011 Rice University study concludes that 27 percent of businesses surveyed lost money running daily deals between August 2009 and March 2011. The study reports that while 56 percent of businesses made money on the deals, only 20 percent of deal customers returned to the store to make another purchase at full price. The ratio is even more severe for appointment-based businesses. While 54 percent of salons and spas made money on daily deals, explains the study, only about 42 percent of them intend to run another daily deal in the future.

“I can’t do daily deals all the time. I get crabby and it shows, and that doesn’t help business,” says Nina DeGidio Haarer, owner of Complete Body Works, a massage  and skincare business in Bozeman contacted by VentureBeat. “It’s great when people get a deal, but I don’t think customers get how it works. A lot of them are chronic daily deal buyers and they have the same expectations of us as our full paying customers. I don’t want them to take over my life.”

Haarer ran a daily deal in May this year that resulted in 900 new customers. She says that while this exposure was great for business, especially a small businesses without a whole lot of money for advertising, the daily deal ended up costing her in other ways.

“I struggled to get my paying clients in on top of the deal clients,” says Haarer. “During the week after the promotion I couldn’t bring in full-price walk-ins because I was booked with deal clients. During a deal, I’m on the phone almost as often as I am doing massages. It just isn’t sustainable.”

Haarer is a Schedulicity client, but she hasn’t had the chance to try Deal Manager yet. She says she most certainly will use it, but only if she runs another daily deal.

“We designed Deal Manager for the merchants, not the daily deals companies,” says Jerry Nettuno, CEO of Schedulicity. He’s pictured above to the right. “We’re not being disruptive to deals. They just need a little management. This problem doesn’t exist for all merchants, but we’re providing a solution for the ones it does.”

Another solution Deal Manager offers is so simple that it’s amazing the majority of daily deal companies don’t do it already. Deal Manager automatically helps business owners get the names and email addresses of daily deal buyers as soon as they buy. This allows followup for customers that might forget to redeem and customers that may want to be reminded to come back (at full price) in the future.

“We’ve got this built-in customer retention model,” says Nettuno. “Getting the customer’s name and email is the first step in retention. We automatically do that for [businesses].”

These problems may seem like small potatoes when looking at the bigger daily deal picture, but Schedulicity has the ability to capitalize on these issues in a big way. They say they don’t have competitors with a similar Deal Manager product. We looked and couldn’t find any either. Perhaps the number of daily deal issues is so great that solving them will result in little business model overlap.

At the end of the day, Schedulicity doesn’t want to ruffle daily deal feathers. The company is careful to note that they believe the benefits of daily deals outweigh the cons.

“We just want daily deal companies to be better stewards of the business,” says Nettuno.

Lots of small, local businesses have inventory they can afford to give away — whether it’s empty seats at a restaurant or space in a yoga class. They can offer heavily discounted fare to people who subscribe to email newsletters from the likes of Groupon, the dominant player in this business, or LivingSocial, the perennial runner-up. Each business basically bets that it will make money from the new customers it attracts.

VentureBeat originally broke news that LivingSocial was working on closing a funding round led by online retailer Amazon.com. The group buying company raised $175 million from Amazon.com as part of its fourth round of funding. LivingSocial also recently closed a micro-funding round worth $2.9 million, according to a recent Form D filing with the SEC. LivingSocial was originally valued at around $1 billion when it closed that funding round, which included an extra $8 million from Lightspeed Ventures.

LivingSocial is offering 100 million shares at a price of around $5.65 per share, according to reports. That would value the company at around $3 billion if the round is fully subscribed, based on the company’s 630 million outstanding shares. The new information comes from an updated certificate of incorporation filed March 31 from the Delaware Secretary of State.

Groupon has reportedly called off the massive buyout offer from Google and apparently makes $2 billion in revenue year, according to a number of reports. The reports also indicate the site could file to go public next year.

The daily-deal space has exploded thanks to sites like LivingSocial and Groupon. Both Groupon and LivingSocial, as well as a host of imitators, now offer deeply discounted offers for services, meals, and group activities from local merchants that have previously struggled to reach new customers online. The sites make money by convincing businesses to offer steep discounts, then selling those discounts directly to consumers and picking up the difference.

Both of those sites are living large right now. Groupon is the king of the hill, based on a recent Experian Hitwise blog post that showed that Groupon received 79 percent of U.S. visits among 81 group-buying sites last week. It was valued at over $1 billion following a large round of funding in April. LivingSocial also recently confirmed an earlier VentureBeat report that it was receiving an investment from Amazon worth $175 million.

AllThingsD reported a few weeks ago that Google and Groupon were in talks, which sparked countless follow-up rumors. We argued that the Google-Groupon deal would inevitably be bad for the daily-deal provider because it would rip the human element right out of the service. Deal sites have grown because they have a human touch. The sites rely on local salespeople, who solicit merchants, and city planners and writers who curate deals and market them with old-fashioned well-written emails.

This would be the second time Groupon has rejected a massive offer from a search giant. There were reports that Yahoo tried to purchase Groupon for as much as $4 billion, after rumors from earlier this month that the deal site was after more funding that would value it at $3 billion. And it’s also the second time Google has failed to pick up a potential daily-deal site in as many years, after it failed to buy Yelp last year.

Sorry guys. Better luck next year?

[Photo: ramblingmediaimages]

The daily-deal space has exploded thanks to sites like LivingSocial and Groupon. Both Groupon and LivingSocial, as well as a host of imitators, now offer deeply discounted offers for services, meals, and group activities from local merchants who have previously struggled to reach new customers online.

Rather than relying on algorithms or some new sophisticated technology like most startups focus on, daily deal sites have grown swiftly as a result of a more human-centered approach. Local merchants that pair with city planners and writers who curate deals and market them with old-fashioned if well-written emails have ended up handling a bulk of the promotion.

Groupon is the largest, and most well-known, daily deal site on the Web. It was valued at over $1 billion following a large round of funding in April. A report by the New York Times indicated the Google-Groupon deal could be worth as much as $6 billion.

AllThingsD reported a few weeks ago that Google and Groupon were in talks, which sparked countless follow-up rumors. At the time, we argued that a Google buyout would be terrible for Groupon because the search giant lacks a human touch. The newest offer also follows reports that Yahoo tried to purchase Groupon for as much as $4 billion, after rumors from earlier this month that the deal site was after more funding that would value it at $3 billion.

As is the case with all deals, this one could fall apart before it sees the light of day. But the deal does make some sense, just like how Google’s $1.65 billion YouTube purchase makes more sense now than it did in 2006.

Purchasing Groupon could easily pay off for Google down the line. Google is also poking around a bit in the online shopping space as well, after it recently launched fashion site Boutiques.com.

Backed by a number of former YouTube employees, ReplyBuy lets users sign up to receive text messages for daily deals with partner merchants. ReplyBuy users can also text back to purchase the deal, after signing up and saving their payment information on the company’s site. It operates in the same space as Groupon in the sense that users have to purchase the product through ReplyBuy, rather than use the text message as a flat discount and buy from the vendor.

That’s all fine and dandy, but I’m also a fan of the (really) little guy. Today that’s Zaid Farooqui, a fellow Tar Heel over at UNC-Chapel Hill that’s been working on a text message coupon startup for a little more than a year. BlinkCoupons lets students at UNC and Chapel Hill residents sign up to receive text message alerts for coupons at local restaurants and stores. Right now BlinkCoupons is partnered with the Daily Tar Heel, the university paper for Chapel Hill. It’s also moving into other papers as well, Farooqui said.

So here we have a tale of two startups. One startup is launching today that is backed by prominent investors. One startup is run by a young student still in school. The generational divide there is pretty telling: texting is still as popular and has as much potential as it has always had. It’s particularly popular in a time-robbed generation filled with early adopters and tech-savvy folks looking for the latest deal (like myself).

Granted, smartphone sales are crashing the mobile phone party at an alarmingly increasing rate. The smartphone market grew 95 percent last quarter when compared to the same quarter a year earlier, when 80.9 million new smartphones shipped. And there are plenty of new options outside of text messaging for smartphones — like Kik, a personal favorite of mine. But amidst the multitude of ways to communicate on smartphones, texting remains the one standard that  every phone, no matter how dumb or smart, can support.

The logical extension of that is to bring e-commerce into the equation. I know I used my fair share of BlinkCoupons while I was a student at UNC-Chapel Hill. I’ve been craving a service like that for some time now in San Francisco. I can only hope that this is a sign to come with startups like BlinkCoupons and ReplyBuy making their moves across the country.