Will Groupon Inc (GRPN)’s Loss Be Amazon.com, Inc. (AMZN)’s Gain?

Page 1 of 2

Investors in online deals company Groupon Inc (NASDAQ:GRPN) had a roller coaster ride after earnings as the company posted wider losses in the fourth quarter. The company posted a quarterly loss of $81 million in the latest three months, up from the $65 million reported in the same period of 2011.

The recorded loss came despite revenue increasing 31.3% to $638.3 million. It’s not that the market had no inkling of the poor results, but the fact that the financial performance fell short of street expectations resulted in a 24% drop in stock price in a single day.

Groupon Inc

What happened after these disastrous but not entirely unexpected results is nothing short of a high-pitched drama. The results put the board under pressure to fire quirky chief executive and co-founder Andrew Mason, who had been with the company for more than four years.

The move was seen as a positive development for the company and marked an end to the era underlined by controversial accounting techniques and deep drops in the share price. The company’s stock price has tumbled more than 75% from its IPO price of $26 in November 2011.

“The events of the last year and a half speak for themselves,” Mason wrote in his departing notes to employees. “As CEO, I am accountable.”

While Mason’s misplaced confidence is well documented, there is little doubt that his departure is not a solution to Groupon Inc (NASDAQ:GRPN)’s problems. The company’s real problem is its business model, which is ludicrously simple to replicate with very low entry barriers.

While Groupon Inc (NASDAQ:GRPN)’s solution initially seemed to favor both merchants and customers, the market began to understand the flaws only after the company got listed. Following Groupon Inc (NASDAQ:GRPN)’s record breaking success with group discounts, it was inevitable that it would be followed by its competitors.

What ensued was intense pressure on margins, which forced the company to get into direct deals – a marked departure from Groupon Inc (NASDAQ:GRPN)’s original strategy of just connecting buyer and seller and taking its cut for doing so. The move into direct deals brought the company in competition with Amazon.com, Inc. (NASDAQ:AMZN) and eBay.

Amazon.com, Inc. (NASDAQ:AMZN) playing catch up

Almost simultaneously, Amazon sensed the potential in daily deals and online coupons. Unlike Groupon, Amazon.com, Inc. (NASDAQ:AMZN)’s view recognizes that daily deals is a viable business, although the margins seen earlier have been permanently eroded now.

In retrospect, Amazon.com, Inc. (NASDAQ:AMZN)’s bet on the business through its Amazon Local service and the substantially controlled LivingSocial site appears to be better placed with multiple lines of business and a proven business model enabling the company to withstand unwanted surprises. Interestingly, Amazon.com, Inc. (NASDAQ:AMZN) has written down a part of its investment in LivingSocial, but the update was no deal breaker when Amazon reported its results in January.

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

Best States To Practice Medicine

The 10 Best States to Have a Business

The 12 Most Expensive Apple (AAPL) Apps in the Market

The 10 Richest Billionaires in the World

10 Biggest Kickstarter Failures

The 10 Best Places to Work At

The Top 10 of Google Inc (GOOGL)’s Most Expensive Acquisitions

13 Best Cities to Visit in South America

10 Most Expensive Works of Art of All Time

The 10 Richest Banks in the World

The 10 Best-Paying Jobs in America (2014)

7 Most Expensive Foods in the World

The World’s Top 10 Earning Authors

Five Wicked and Very Expensive Items (and Other “Stuff”) Sold on eBay

10 Biggest Celebrity Bankruptcies

The Top 10 Highest Paid CEOs in 2014

The 10 Most Expensive Real Estate Cities in America

10 Most Expensive States To Live In America

The 10 Best Airlines in the World

The 10 Best-Selling Cars in 2014

The 10 Best Industries to Invest In

The 10 Most Expensive States to Own a Car In

Top 10 Business Schools in US: 2014 Rankings

Top 20 Female Billionaires in 2014

6 Movies That You Should Watch to Better Understand The Cold War

Top 15 Best Paying Jobs for Women in 2014

Top 6 Things Rich People Do Differently Every Day

5 Retirement Mistakes To Avoid (and Einstein’s Famous Quote)

11 Smartest People in the World

6 Films About the Financial World You Need To Watch (While “The Wolf” is Not Around)

Warren Buffett and Billionaires Are Crazy About These 7 Stocks

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top 6 Tax Scams and How to Protect Yourself

Top Businesses to Invest In

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!