This site requires a more recent version of Adobe Flash Player to function properly.
Go here to get Flash.
Trefis's graphical modelling tools require Flash, but here's a preview of some of the content you'll see once
Flash is enabled:
Investment Overview for Groupon (NASDAQ:GRPN)
Below are key drivers of Groupon's value that present opportunities for upside or downside to the current Trefis price estimate for Groupon:
- Groupon North America Average Active Customers: We expect this figure to increase from an estimated 19 million in 2013 to nearly 39 million by the end of our forecast period. However, there can be an upside of more than 10% to our price estimate if this figure was to go up to 50 million instead. On the other hand, there can be downside of similar order if the competition halts the growth in Groupon's North American customer base, and the figure reaches only 29 million.
- Groupon North America Take Rate: We expect this figure to increase from 53.4% in 2013 to nearly 70% by the end of our forecast period as a result of Groupon's focus on growing physical goods sales. However, there can be a downside of about 10% if the rate was to remain stable. This could happen if increase in take rate due to higher proportion of direct sales gets offset by loss of leverage over vendors due to growing competition.
- SG&A Expenses as % of Revenue: We expect this figure to decline from 41.3% in 2013 to around 27% by the end of our forecast period due to operating leverage gain, cost cutting efforts and measured approach towards business expansion. However, if these costs were to decline to only 35% instead, there can be downside of about 10%.
For additional details, select a driver above or select a division from the interactive Trefis split for Groupon at the top of the page.
Groupon is the largest collective buying platform. It was launched in November 2008 as a part of The Point (an online community launched in 2007). Groupon features daily deals for various restaurants, spas and other stores in North America and international markets. The company also sells physical goods and merchandise, and has expanded its offerings to include travel and flight packages.
Groupon serves as an alternate advertising medium for business owners. For each Groupon sold, Groupon gives a share of the coupon value to the business owner with the rest of the amount taken as its revenue.
Groupon's North American business is most valuable primarily due to higher number of subscribers and high take rate. Compared to 14.3 million average active customers in EMEA and 9.8 million in Rest of World, Groupon had 19 million average active customers in North America in 2013. In addition to this, its take rate for the region stood at 53.4% during the same year compared to 37.5% in EMEA and 33.4% in Rest of World. The company has strong brand recognition and merchant relationships in the U.S.
Social buying to continue to increase
Research has indicated that the main factors that motivate individuals to act on an opportunity include social aspect, scarcity and liking. All these factors present an interesting opportunity for the sector as a whole. Although the concept of social buying has existed for a while, it has only recently gained some traction. This has been attributed to several factors.
- Due to the presence of social platforms such as Facebook and Twitter, the social nature of discounts has held well amongst users. Users can interact with one another easily and discover opportunities in a quicker fashion.
- Traditional coupons and sales do not offer as deep a discount that most of the social buying sites offer. The collective nature of deals enables customers to obtain deep discounts only if a certain number of individuals subscribe to it.
Growth in competitors
Groupon’s business model is easily copyable and several social buying sites have sprung up across the world. Low barriers to entry have encouraged these players to join the band wagon. China alone has over 100 sites offering similar services. Groupon has tackled this situation by trying to acquire other competitors in smaller markets in a bid to expand.
Availability of shopping alternatives
Group buying is not the only social shopping mechanism currently. There have been many other means for customers to get discounts and learn more about what’s around them. They include
- Real time online shopping – Users can connect with each other and exchange ideas at the same time to get opinions about products
- Reviews and recommendations – Sites offering a discount for reviewing a product or recommending it to others
- Charity based shopping – Websites like iGive provide discounts to users for shopping through their network of affiliates
- Location based shopping – Users are given points when they enter and check in places. Four Square is an prime example
Expansion in new product categories
Groupon has been making acquisitions and investing in diversifying its business to reduce its reliance on cash flows from daily deals. In September 2013, the company announced the acquisition of travel app Blink, which primarily deals in curated same day hotel bookings in Europe. Groupon is also investing in building a warehouse network that will allow it to ship physical goods to its customers directly instead of relying on its merchants. The company has also introduced discount coupons. The online coupon market in North America stands at $4 billion annually, and the total coupon market is somewhere around $28 billion.
Increased focus on mobile
Groupon is heavily banking on growth in mobile and Internet usage. The company stated that it expects the number of smartphone users to grow fivefold over the next 5 years, and this could double the global Internet user base. The company's focus on mobile is evident from the fact that its mobile app witnessed more than 33 million downloads in 2013, and mobile accounts for almost half of its total transactions now.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
View All Help Topics