Is Groupon a Good Investment?

Groupon Inc. (NASDAQ:GRPN), the widely popular daily deals site, has seen its stock lose over 70% in value from its November 2011 IPO price of $20. During the second quarter, Groupon began a steady decline amidst concerns over user growth and monetization. Over this same time, however, Bill Miller with Legg Mason Capital Management and Steven Cohen of SAC Capital almost doubled their positions in the company, while Jim Simons of Renaissance Technologies took a new position (see all the hedge funds owning Groupon here).  Since then, the stock has continued its decline, falling as low as $4 before rebounding over the past month to now trade above the $5 mark.

SAC CAPITAL ADVISORS

Bill Miller and Steven Cohen also own Amazon.com, Inc (NASDAQ:AMZN), the e-commerce giant that owns an estimated 30% of Groupon’s closest direct competitor, LivingSocial. Amazon’s stock has been continuously making all-time highs over the past month. Although Amazon and Groupon have different business models, they both trade rather cheaply on a P/S basis compared with other popular Internet companies. Amazon trades at a P/S of 2.2, while Groupon trades at 2.1. Groupon is a local e-commerce marketplace that connects merchants to consumers by offering goods and services at a discount. Each day the company e-mails its subscribers discounted offers for goods and services that are targeted by location and personal preferences.

Other popular Internet companies, such as Kayak Software Corp (NASDAQ:KYAK), TripAdvisor Inc. (NASDAQ:TRIP) and eBay Inc. (NASDAQ:EBAY), all trade at a P/S ratio well above 2. KAYAK trades at a P/S of 5.7, TripAdvisor with a P/S of 7.6 and eBay at a P/S of 5. The forward P/E for Groupon is 14.4, while the P/E ratios of these other companies are all at or above 30, expect for eBay, which trades at a P/E of 18. Groupon trades at a PEG ratio of 0.88 based on a 5-year expected growth rate.

Consensus estimates show Groupon’s EPS over doubling from the 2012 estimate of $0.18 to 2013 estimate of $0.37. The numbers suggest that the company has strong expected growth prospects, but we are not ready to recommend Groupon just yet. At the same time that Bill Miller and Steven Cohen were upping their positions, Lee Ainslie with Maverick Capital was decreasing his first quarter position by 70%. During the first quarter, Ainslie and Maverick Capital held the most shares of Groupon, 6.3 million) of any of the hedge funds we track, but reduced this position to 2 million shares in the second quarter.

Over this same timeframe, Groupon added around 1 million active customers, brining their total active users to 38 million. This is down, however, from the 6.6 million active users added in Q2 2011, and the 3 million added Q1 2012. Consequently, this means that the company’s trailing twelve month customer growth rests near 3%, versus its 8-10% estimates. This shortcoming also impacted gross billings, which declined 5% from the prior quarter to $1.29 billion.

Interestingly, Groupon’s closest competitor, LivingSocial, recently announced plans to slow down its aggressive pace of acquisitions. LivingSocial has managed to continue to eat into Groupon’s market share, but its most recent announcement could be a signal that market saturation is occurring. Looking at Groupon’s “take rate”, which measures the percentage of profits it keeps per customer transaction, there has been improvement, as it is up to 44.2% after hitting 41.3% last quarter, so there are still some positives here. Groupon’s initiative to shift its focus from new customer acquisition to current customer monetization also bodes well for its bottom line. The company has been great at getting users to sign up, but we would like to see how gross billings improve over time as user acquisition continues to decline.

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

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

The 5 Most Expensive Cars To Insure in the World

The 10 Most Common Genetically Modified Foods

10 Self-Made Billionaires Who Came From Nothing

The 10 Most Expensive Cities to Live in North America

The 13 Most Expensive Headphones in the World to Represent

The Top 20 Wealthiest Soccer Teams in 2014

4 BuzzWorthy Cannabis Stocks And Some Smoking Derivative Plays

The 10 Healthiest Fast Food Chains in America to Dine At

The 5 Most Expensive Cat Food Brands You Can Spoil Your Kitty With

The 6 Best eCommerce Platforms for Small Businesses

The 10 Worst Mistakes an Entrepreneur Can Make

The 5 Most OP Characters in League of Legends to Carry Games and Crush Foes With

The 5 Best Foods to Eat Before Running that Will Help You Pound the Pavement

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

Top 6 Cities For The Ultra Rich to Live in Comfort

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

How 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

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!