Groupon Has a Great Model but Needs to Deliver
There are companies that do well simply because they are the early entrants and fight hard to stay ahead, but there are also those that cannot defend their space. In the highly competitive and cut-throat Internet space, Groupon Inc (NASDAQ:GRPN) falls into the latter group.
GRPN stock traded as high as $31.00 when it debuted in February 2014, but the stock price has not exactly fallen in place for this online discount site.
In February 2016, GRPN stock fell to a historic low of $2.15 prior to scrambling to a range high of $5.94 in August. Unfortunately, the price of Groupon stock is back down to below $4.00, as traders look for reasons to buy this once-darling of the Internet.
Now don’t get me wrong. I’m not looking at GRPN stock as a stock to buy and put away for retirement. Groupon Inc is a contrarian stock for traders who believe that the company can turn around its fortunes. GRPN stock is up 24.59% year-to-date, so clearly some of us are in gambling mode.
Chart courtesy of StockCharts.com
The problem so far for Groupon Inc has not really been its lack of execution, but the emergence of numerous online rivals over the last few years.
The reality is that there is nothing special with Groupon based on any special technology, but my opinion is that the company is still the top provider of online coupons.
Groupon Inc markets deals on goods and services to its user base via daily e-mail blasts and through its web site. In exchange, the company receives a portion of the sales.
I think the business model is strong, but the lack of barriers to entry pose challenges for Groupon Inc. If the company can figure out a better plan to fend off its competitors, there would be no reason to doubt that GRPN stock would surge.
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A Potential Bullish Case for GRPN Stock
Groupon Inc is still a multi-billion-dollar business, with revenues of $3.12 billion in 2015, representing the second straight year of sequential growth. The thing is, the muted 2.56% growth in 2015 is not exactly something that makes me want to jump on the bandwagon. Yet, given that revenues surged by 18.22% in 2014, all hope is not lost.
For Groupon stock to ratchet higher, there must be stronger numbers. As of now, the company is slated to grow revenues by a mere 0.1% this year and 3.0% in 2017. (Source: “Groupon, Inc. (GRPN),” Yahoo Finance, last accessed December 2, 2016.)
If Groupon Inc can somehow re-jig the way it operates its business, either via new marketing strategies, more advertising, or better relationships with sellers, there could be hope. The company has a superior platform to its rivals, and it needs to harness this.
For the time being, GRPN stock is on sale. The question is: can it make its brand that much more appetizing so it can move from the sales rack?