Groupon Inc (GRPN): I’ve Got The Goods On This Company

Page 1 of 2

GrouponI know that many people in the financial world like to make fun of Groupon Inc (NASDAQ:GRPN). I’ve heard Jim Cramer on his Twitter page saying he doesn’t know if Groupon sells anything other than massages. Analysts have worried that gross billings growth is slowing down. However, there is a drastic change going on at Groupon, and for patient investors this company holds real opportunity.

Sell Someone Else’s Stuff At A Discount, What A Business!
Groupon’s original business model was pretty simple and predictably brought out competition. The company’s business is essentially to suggest that retailers of all stripes heavily discount their products and services and let Groupon market these deals. While many have questioned the lack of a “moat” in this business, the simple fact is, this business is still growing.

However, Groupon Goods has the potential to change the retail landscape. The holy grail of retail is being able to offer an exclusive product or service. Since every Groupon Goods offer is exclusive, the company doesn’t have to worry about competitors undercutting their pricing. This is part of why companies like Target Corporation (NYSE:TGT) are working with their suppliers to get products that are “Target exclusives.” This helps insulate the retailer from online competitors like Amazon.com, Inc. (NASDAQ:AMZN).

Exclusivity Is Key
Physical retailers have to pay salespeople and customer service reps, and maintain expensive facilities. Target has been able to maintain a superior margin by carrying exclusive items, and focusing on clothing and higher margin sales. This accounts for the company’s over 31% gross margin in the current quarter. In theory, Amazon has an advantage over Target, in that they don’t have the over 1,700 stores that Target maintains. However, as Amazon has expanded, they do have warehouse expenses that didn’t used to exist. The company recently reported a gross margin of over 24%, but investors may not know what gross margins to expect from Amazon until their distribution buildout subsides.

Groupon Goods offers customers products and services that can’t be bought elsewhere at the Groupon price. Groupon doesn’t have to maintain as many warehouses because of their size. Think of Groupon Goods like a whole bunch of exclusive deals located all in one place.

Groupon seems to have an advantage over both Amazon and Target because of their two very different businesses. The company’s traditional Groupon service is very high margin because of the lack of inventory. In the current quarter, the company’s traditional business gross margin was 87.21%. Groupon Goods on the other hand is a fast growing, but lower gross margin (11.98%) business. Groupon’s advantage is, they can leverage the high margin traditional business against the much faster growing Goods business. That is exactly what they did in the current quarter, with a combined gross margin of 31.97%.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

6 Ways to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

The Most Heartwarming and Inspirational Story Of This Halloween Season, It Will Make You Cry and Jump For Joy

10 Best Party Songs of All Time to Bring the House Down With

5 New World Order Conspiracy Theories that Will Strangle the World

The 10 Highest Rated Movies of 2014

The 10 Largest Container Shipping Companies in the World

The 10 Largest Armies in the World: Who Should We Be Afraid Of?

Best Warren Buffett Quotes on Money You Need to Hear

The 10 Highest Suicide Rates by Profession

The 20 Most Underrated Movies of All Time

The 10 Fastest Growing Companies in America

The 10 Biggest Outlet Malls in USA

The 5 Most Popular Rap Songs of All Time

The 10 Countries that Eat the Most Meat

The10 Most Expensive Countries to Fly To

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!