Groupon (NASDAQ:GRPN) has benefited from the spike in daily deals in the last holiday season. According to daily-deal business intelligence firm Yipit, Groupon has been outperforming the overall daily deal industry in North America, growing its gross billings by 6% compared to an industry growth of 2% from October to November 2011. [1] The big question, however, is whether Groupon has reigned in its marketing expenses, which stood at around 55% of its net revenues for January to September 2011. Groupon leads the daily deal market and shares this space with players such as LivingSocial and Google (NASDAQ:GOOG) Offers.
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Groupon’s New Ventures Need to Perform
Groupon’s new ventures like Getaways and Groupon NOW will be crucial for future growth, especially as the daily deals segment continues to saturate with more and more competitors. Unfortunately, Groupon NOW has not yet managed to garner the position Groupon desired contributing just around 1% to the company’s total value by our estimates.
While they may not have a material impact on Q4 2011 results, loyalty building programs like Groupon Rewards would increasingly assume importance as competitors like Google Offers expand further in 2012.
- Source: Yipit Blog
Meanwhile, Rue La La, an online retailer, shut down its daily deals business following in the footsteps of Facebook. [2] This might be just a beginning to the consolidation of the daily deals industry in 2012, and would only increase as companies increasingly find it costly to manage a large sales force. For Groupon as well, it will be interesting to see the extent to which it has curtailed its marketing and administrative expenses for Q4 2011. The company has pitched its revenue growth story to investors for a long time now, but their patience to see Groupon become profitable may soon run out.
We recently launched coverage of Groupon with a $13 price estimate. Refer our note on why Groupon’s valuation has fluctuated significantly over the past two years.
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