Groupon (GRPN)

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POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

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 just under 32 million in 2018 to just under 35 million by the end of our forecast period.
  • Groupon North America Take Rate: We expect this figure to remain stable at just under 50% by the end of our forecast period as a result of Groupon's focus on growing physical goods sales offset by rise in competition and addition of higher quality (lower take rate) merchants.
  • SG&A Expenses as % of Revenue: We expect this figure to decline from 28% in 2018 to about 25% by the end of our forecast period due to operating leverage gain, cost cutting efforts and measured approach towards business expansion.

For additional details, select a driver above or select a division from the interactive Trefis split for Groupon at the top of the page.

BUSINESS SUMMARY

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.

SOURCES OF VALUE

Groupon's North American business is most valuable primarily due to higher number of subscribers and high take rate. Compared to 17 million average active customers outside North America, Groupon had 32 million average active customers in North America in 2018. However, its take rate for the region stood at 48% during the same year compared to 56% in international segment. Although the company has strong brand recognition and merchant relationships in the U.S, the International take rate is higher since the company exited some low margin markets internationally in recent years.

KEY TRENDS

Drastic change in strategy under the new leadership

Groupon overhauled its growth strategies under its new leadership. These include significantly expanding marketing activities, restructuring the asset portfolio (especially international operations), and moving away from certain low-margin consumer electronics businesses. All these moves are expected to drastically weigh on both top-line as well as profitability in the near term.

Groupon's stock has been weak

Groupon's stock has declined owing to continued challenges in its business model.

A number of restructuring steps were taken in 2015

Since September 2015, the company announced restructuring initiatives to cut around 1,100 positions and exit operations in seven international geographies. This followed its earlier decision to exit the markets of Greece and Turkey. The company further exited 11 markets in 2016 through 2017 to improve profitability and focus on North American and Europe. While theses divestitures negatively impacted top-line growth in the last couple of years, its impact on profitability could be positive in the long run.

Measures are being taken to boost margins in the e-commerce and international businesses

Groupon is trying to raise its goods margins (especially in North America) by shifting additional business to drop-ship, adding more fulfillment to its own distribution center, and raising the number of units per order. Additionally, it now expects to move a higher portion of its goods business to third-party to boost its margins.

Increased focus on mobile

Groupon is heavily banking on growth in mobile and Internet usage. Mobile platform currently accounts for more than 50% of Groupon’s business and in certain markets, this figure stands at more than 65%. This bodes well for Groupon considering Internet usage is increasingly shifting towards mobile usage, and average spend by mobile customers is higher than by web customers.

Move from Push To Pull model

Groupon has been focused on transitioning its lower-margin, higher-volume marketplace customers in favor of its traditional audience of higher-margin, lower-volume coupon customers. Not only does this transition necessitate a fundamental change in the company's unit economics, but also requires significant investments on the platform side.

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Despite Recent Declines, Groupon’s Stock Still Looks To Be Worth Over $4

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What To Expect From Groupon Through 2018 After Q2 Revenue Decline

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What To Expect From Groupon’s Second Quarter Earnings

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