Groupon Inc (NASDAQ:GRPN) a coupon theory gone wrong

Posted by Steve Raasch July 1, 2013 1 Comment 2154 views

Theoretically, nothing should have gone wrong with Groupon Inc (NASDAQ:GRPN). It seemed like a perfectly good idea, with a perfectly dynamic CEO at the helm. So, how then did it manage to become such a maligned company even before it could grow roots in the industry? At launch, it was one of the stock-market’s most hyped IPO’s. Sadly, right from the outset, GRPN has not done much apart from smash investor dreams. No doubt, that it has grown exponentially from just a 400 clients-base in 2008 to the current 150 million but sadly, these numbers have not spoken much for the company. It dropped almost 80% from the highs that it had experienced. Today, the company is trading at close to 27-times the estimated earnings for next year.

Groupon continued dropping from its $20 IPO price to a $2.60 low in 2012 November, which was an around 87% decrease. Over the last 6 months, the price has managed to rebound. Currently, GRPN is trading at almost $6.88 and has risen 68% over the last 6 months. Many market-watchers feel that the company’s business model was a flawed one. Once Groupon got off its feet, numerous companies such as Living Social and Amazon, made a beeline for the business. There really is no hurdle in the path of these competitors from outrunning GRPN and attracting its customers.

The daily deal model failure

Living Social has been facing its own challenges with making profits and it seems like the daily deal model itself does not offer sustainability. Amazon made almost a $175M investment in Living Social. However, in the 2012 Q3 it reported $169M worth of Living Social-related losses. Groupon follows a more largely-generic strategy of putting goods up for purchase, via its site. Now that the novelty has worn-off, merchants have realized that coupon deals are not indicative of stable customers and most will almost always be one-off customers. This also means that those merchants will, in most probability not offer any deals again. Despite its slight rebound, Groupon has not been able to convince investors that it will be able to pull itself out of the doldrums and operate profitably.

About Steve Raasch

Steve Raasch is a breaking news reporter for GDP insider. During his nearly two decades of editorial experience, Steve has covered a variety of topics including small business, health, personal finance, advertising, workplace issues and consumer behavior. Steve is very passionate about his work. Steve earned a master of arts degree in international relations from the Johns Hopkins University School of Advanced International Studies in Washington.

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There is 1 Comment

  1. Huh?
    - July 1, 2013
      -   Reply

    Bit of an odd time to write this. Maybe 12 months too late? GRPN is up 79% YTD, has $1.5B in cash, and has basically vanquished every other competitor with Facebook and Yelp exiting the market altogether, Google exiting international markets, and LivingSocial (on which AmazonLocal depends for inventory) almost out of business and requiring a complete recap earlier this year to avoid bankruptcy.

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