Why Groupon’s Take Rate In North America Is Going Up?
One of the reasons why Groupon’s (NASDAQ:GRPN) North American operations are most valuable is its high take rate in the region. This metric refers to the percentage share of Groupon in customer purchases and is calculated by dividing the company’s revenues by gross billings. Groupon’s take rate in North America has increased from 40.7% in 2011 to 53.4% in 2013, and stands much higher than the figure for EMEA (Europe, the Middle East and Africa) and Rest of World. This can be attributed to an increased negotiation leverage in the region as well as higher proportion of direct sales. We expect this trend to continue, and help Groupon build a relatively stable business with greater control over the sales outcome.
Our current price estimate for Groupon stands at $8.45, implying a premium of about 5%-10% over the market price.
- Is Groupon’s Stock Attractive At $21?
- Does Groupon Have Upside Once Pandemic Subsides?
- Why A Groupon-Yelp Deal Is A Bad Idea
- Groupon’s Presence AI Acquisition Is A Good Deal If It Didn’t Cost More Than $350 Million
- Groupon’s Q1 Weakness Likely To Remain In Q2, But The Outlook For The Year Isn’t All Bad
- Groupon Q4 Earnings: Key Takeaways
Check out our complete analysis of Groupon
Why Groupon’s Take Rate Will Continue To Go Up
Groupon has clear intention to expand in physical goods space considering the success that online retailer Amazon (NASDAQ:AMZN) has witnessed in this area. Online spending has grown significantly over the past decade as lower operating costs have enabled merchants to offer deep discounts to their end customers thereby spurring increased demand. The global e-commerce sales have jumped from $482 billion in 2009 to an estimated $963 billion in 2013. In North America alone, the online retail sales have gone up from $132 billion in 2008 to $263 billion in 2013 accounting for roughly 5.8% of the total retail sales. The trend is not only encouraging, but it also shows tremendous growth potential. Groupon’s decision to push for physical goods sales is intended to leverage this growing market.
The company is investing in building a warehouse network that will allow it to ship physical goods to its customers directly instead of relying on its merchants. It needs to maintain high customer service and delivery standards if it has to compete against incumbents. Groupon has mentioned that it intends to sell some specific items at the best possible prices, and isn’t interested in selling everything just yet. Although Groupon’s deals business has crumbled in international markets, the silver lining is that the brand is recognized in the U.S . The company can leverage its large user base to successfully expand its physical goods retailing business domestically. Most of physical goods sales is likely to come through direct sales channel wherein Groupon is the owner merchant, and is responsible for storage and delivery of goods and merchandise. This implies that gross billings and net revenue are same and take rate is 100%. As the proportion of direct sales increases, Groupon’s overall take rate will go up.
Additionally, Groupon is the biggest social discounted buying service in the world. Its sheer scale and presence makes it attractive for companies that want to promote themselves on a nation wide or world wide scale. Thus for businesses, Groupon with its growing customer base will always remain attractive. This should help the company maintain or possibly improve its take rate on most deals, especially with its efforts of retaining customers and making the deals more relevant.
See More at Trefis | View Interactive Institutional Research (Powered by Trefis)