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Discretion Is the Better Part of Groupon Inc (GRPN)

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Groupon Inc (NASDAQ:GRPN)Last week, Groupon Inc (NASDAQ:GRPN) rolled out a new service to big cities in the U.S. that combines the restaurant reservation service of OpenTable Inc (NASDAQ:OPEN) and the dining discounts of restaurant.com, but best of all, a dining discount is automatically applied to your bill…no coupon embarrassment.

It is Groupon Inc (NASDAQ:GRPN) Reserve and available in NYC, Chicago, LA, Washington DC, Denver, Miami, Atlanta, Philadelphia, San Francisco, and Boston. At the Groupon Reserve website, pick your city, date, time, and number of people and results come up showing various high-end restaurants and the amount of the discount. The best deals come with weekdays and what is called in the restaurant biz, “the shoulder,” the off peak lulls between lunch and dinner and after the main dinner rush.

Like restaurant.com deals, most restaurants will tack back on an 18%-20% gratuity to the bill. Noodling around NYC for a Tuesday reservation at 3:30, the best discount was 20% although at other times and cities discounts can be up to 40%.

The little tweak of no voucher, no coupon, no pre-payment may be what puts Groupon Inc (NASDAQ:GRPN) Reserve over. The service is powered by Savored.com’s reservation engine which Groupon bought last September. Right now, Reserve is featuring only restaurants but will expand to other high end offerings like spas, salons, entertainment, and hotels by the year’s end both in the U.S. and overseas.

A hit to the breadbasket

This is a direct hit to the breadbasket for OpenTable Inc (NASDAQ:OPEN), the restaurant reservation company. OpenTable’s business model is the initial restaurant payment of up to $700 for its touchscreen Electronic Reservation Book system with subscription payments of $199 monthly. One table booked per month can easily justify the subscription.

Despite its high trailing P/E of 57.10, it has grown revenue by 29.90% over five years and EPS by 42.08% over three years. Its stock is down over 10% from its 52 week high of $72.18. Its market cap is $1.4 billion.

The company expects to grow revenue again this year by over 20% domestically and by over 50% globally as the first mover in the online reservation space. Analysts may trim their domestic revenue expectations with Groupon Inc (NASDAQ:GRPN)’s entry.

Although OpenTable Inc (NASDAQ:OPEN) has 15% share of U.S. diners who dine in reservations-needed establishments, Groupon Reserve has 600 top restaurants lined up in its first week and secret cheapskates and other diners get a discount with booking through Reserve, which they don’t at OpenTable. The stock has the highest short interest of these at 20%.

Plethora, surfeit, glut of competitors

Groupon Inc (NASDAQ:GRPN) Goods and Deals still has major competition from all the daily deal sites including Amazon.com, Inc. (NASDAQ:AMZN) with its stake in Living Social, Groupon’s most direct competitor, and its own Amazon.com, Inc. (NASDAQ:AMZN) daily deals.

Groupon has teamed up with Expedia for its Getaways travel deals. In this arena, Groupon competes against Priceline.com Inc (NASDAQ:PCLN) and the other travel deals sites.

Not having an impregnable moat is always the sticking point with Groupon. Another problem has been the dissatisfaction of the business owners who offer deals, especially small businesses, as the initial success of the first wave of Groupon vendors did attract new business.

Soon however, small businesses discovered Groupon deals attracted the wrong kind of customer: querulous and demanding; often hurting the businesses’ reputation by complaining on Yelp!. Even if they were horrible customers, they didn’t come back. It was too much like the old joke, “the food was terrible… and such small portions!”

Groupon has tried to address this since businesses’ ire hit critical mass in 2011. Groupon campaigns are now more flexible for volume and duration and the company boasts a half million satisfied businesses and over 41 million customers. According to a 2012 Foresee survey, 91% of Groupon deal users returned or planned to return to a business after the initial Groupon Inc (NASDAQ:GRPN) deal.

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