When Groupon Inc (NASDAQ:GRPN) issued its massive IPO in July 2011, the company was in a difficult position. After a reissued S-1 — a testament to the company’s inexperience — the rapid emergence of competitors, and customer deal fatigue (translation: exasperation at the number of emails they received), Groupon Inc (NASDAQ:GRPN) was in a distressed position. The stock dropped 67% in just over a year and a half. However, given these new price lows, has the time come to reconsider this company as an investment choice?
Time to reconsider
When Groupon Inc (NASDAQ:GRPN) first began, it had a small amount of merchants and customers in each market. The company’s strategy was to acquire email addresses and forward local deals to subscribers. Now that the company has grown to over 200 million subscribers and 42 million active customers, the company is in the process of changing its fundamental marketing strategy to one of customer personalization.
As a result, Groupon Inc (NASDAQ:GRPN)’s reported billing growth dropped by over 500 basis points from 2012-2013. In addition, the company’s marketing expenses as a percentage of gross billing, which was, at one point, nearly 29%, has since dropped to 3.5% — a clear indication that the company is no longer focused on rapid customer acquisition.
Groupon is also making an effort to transform its business into a more mobile-driven one, which further demonstrates that it’s focused on moving beyond email and into search. The number of Groupon Inc (NASDAQ:GRPN)’s active deals also increased to an average of 40,000 by March 2013 (up from 1,000 at the time of the IPO) in North America. Groupon is arguably one of the most mobile-saturated e-commerce companies today, boasting 45% of North American transactions coming from mobile. This represents a 15% increase from 2012.
I am not advising you to rush out and buy Groupon; rather, add it to your watchlist. A key point is whether or not Groupon will be able to convert its 200 million subscribers into active customers. It will take several quarters of earnings to determine if this is possible.
Groupon Inc (NASDAQ:GRPN): the next OpenTable Inc (NASDAQ:OPEN)?
A company that deserves discussion in relation to Groupon is OpenTable Inc (NASDAQ:OPEN). This San Francisco-based company, which makes real-time restaurant reservations for customers, profits by charging restaurants both monthly and per-reservation fees. In 2010, OpenTable Inc (NASDAQ:OPEN) had a daily deals segment called “Spotlight,” but the company scrapped it by late November of 2011 as the result of disappointing sales (2% of sales during the third quarter of 2011, or less than $6 million.)
