Groupon Fights to Keep Users With More Tech Firepower

-68.41%
Downside
13.29
Market
4.20
Trefis
GRPN: Groupon logo
GRPN
Groupon

While Groupon’s (NASDAQ:GRPN) revenue growth for 2011 was strong, the company’s expenses remained on the worrying side. Groupon’s aggressive sales force growth this year has resulted in its total SG&A (Selling, General and Administrative) expenses being around 50% of its net revenues at $813 million. [1] Going by recent trends, Groupon is now focusing on improving its social shopping technologies and hopes to increase the number of Groupons sold on a per subscriber basis. Groupon leads the daily deal market and shares this space with players such as LivingSocial and Google (NASDAQ:GOOG) Offers.

See our full analysis for Groupon

Acquisition Spree Continues

After directing most of its acquisitions towards acquiring similar daily deal clones, Groupon’s purchases have now shifted to buying tech start-ups that would add to its user engagement. After the Mertado and Campfire Labs acquisition, the most recent one was Adku, a start-up focused on building algorithms to optimize a user’s online shopping experience. Getting a user to stick and buy more Groupons would be of paramount importance to Groupon in 2012, given that its mature North American business is already facing a decline in the number of Groupons sold per subscriber. Its no wonder then that Groupon itself has changed the way it reports users, shifting from the number of e-mail subscribers to “active customers” i.e. users who have bought a Groupon atleast once in the last year.

Pressure On Take Rates Expected To Continue

It seems that competitive pressures and merchant complaints have taken their toll on the company. Groupon’s overall take rate, defined as the ratio of its net revenues to its gross billings, has declined from around 42% in 2010 to roughly 40.5% last year. While the company may attribute it to a change in the “deal mix”, we expect that take rates will continue to face a downward pressure, especially if Groupon does not make a conscious shift to merchants who have low marginal costs.

We have updated our analysis for Groupon with a $12.55 price estimate. The update has been made based on our adjustments to the company’s revenue, margin, and take rate forecasts, as well as changes to the company’s net cash/debt position.

Relevant Articles
  1. Is Groupon’s Stock Attractive At $21?
  2. Does Groupon Have Upside Once Pandemic Subsides?
  3. Why A Groupon-Yelp Deal Is A Bad Idea
  4. Groupon’s Presence AI Acquisition Is A Good Deal If It Didn’t Cost More Than $350 Million
  5. Groupon’s Q1 Weakness Likely To Remain In Q2, But The Outlook For The Year Isn’t All Bad
  6. Groupon Q4 Earnings: Key Takeaways

Refer our note on why Groupon’s valuation has fluctuated significantly over the past 2 years.

Understand How a Company’s Products Impact its Stock Price at Trefis

Notes:
  1. Groupon Announces Fourth Quarter 2011 Results, 8th Feb 2012 []