Legal Troubles May Haunt Groupon in the U.K.

Groupon’s (NASDAQ:GRPN) troubles seem to continue in the U.K. even after the bakery fiasco that happened a couple of weeks ago. This time the Office of Fair Trading (OFT) is set to launch an investigation into the company for allegedly violating Advertising Standards Authority (ASA) regulations 48 times in the past 11 months. ^[1] Groupon leads the daily discount space competes with players like Google (NASDAQ:GOOG) and LivingSocial.

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Groupon May Need to Clarify Deal Terms Further

The three specific concerns raised by the ASA over Groupon are:

1. Failure to conduct promotions fairly, such as not making clear significant terms and conditions;

2. Failure to provide evidence that offers are available; and

3. Exaggeration of savings claim

The above three concerns quite clearly indicate that while consumers might still love the hefty discounts offered by Groupon, merchants require more from the company to ensure that their businesses do not run into losses. Events such as a single overload of orders or lack of clarity in payment terms can have serious adverse consequences on merchants. Groupon might need to overhaul the terms and conditions provisioned for its merchants and customers, although it’s too early to speculate the exact impact of the OFT investigation.

We recently launched coverage on our analysis of Groupon with a $13 price estimate. Refer to our note on why Groupon’s valuation has fluctuated significantly over the past 2 years.

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1. The Guardian: Groupon to be Investigated by Office of Fair Trading [↩]