This Is Huge for GPRN Stock
E-commerce firm Alibaba bought 5.6% of Groupon Inc (NASDAQ:GRPN) in February and GRPN stock has returned to a level not seen since last summer. Groupon stock is benefiting directly from a growing Chinese investment in U.S. companies. Alibaba is now the coupon web site’s fourth-largest shareholder.
Groupon stock has increased 80% in total since Alibaba announce the transaction. Groupon’s sharp recovery was also good for Alibaba Group Holdings Ltd (NASDAQ:BABA) stock. Jack Ma’s company gained nearly nine percent. Interestingly, Yahoo, which owns 384 million shares (about 15%) of Alibaba, has also gained and added eight percent to its share price.
According to several analysts, Alibaba’s investment in Groupon is tied to the sale of Meituan, a Chinese coupon web site that’s larger than Groupon. Groupon has been growing rapidly in recent years, but a hasty international expansion generated high losses. Alibaba can facilitate the coupon site’s international expansion, starting in China, where coupon or discount buying has gained considerable popularity.
Apart from the Alibaba purchase, Groupon shares soared on better-than-expected quarterly results. At a price of $4.78, it is, however, still far below the $20.00 initial public offering (IPO) price in the fall of 2011. Groupon has been on a downtrend since its IPO. It has not managed to grow or generate profit. In November 2014, Groupon replaced CEO Eric Lefkofsky with Rich Williams.
The latter has stretched the marketing budget in an effort to revive and reinvent Groupon as a marketplace where shoppers can find deals on goods and services from restaurants to spa treatments and jewelry. The company expanded quickly abroad but had to leave with its tail between its legs from 17 countries. It still operates in 28. (Source: “Groupon Soars Again, This Time After Alibaba’s 5.6% Stake,” Bloomberg, February 16, 2016.)
For those fearing that Alibaba may sell Groupon just as easily as it bought it, consider the important benefits. Through Groupon, Alibaba gets access to U.S. technology, especially in improving restaurant or even hotel booking services. It can adapt that technology in China to strengthen its dominance in a fast-growing area of the Internet commerce space.
The question now is whether Alibaba will be adding to its 5.6% stake. Is it chasing full control of Groupon? The possibility that Alibaba is weighing the opportunity to buy the whole company is worth considering. Buying more than five percent of the company just to learn Groupon’s buying practices seems a tad exaggerated. At a market value of $1.6 billion, Alibaba could easily take over Groupon. (Source: “Alibaba Eyeing Buyout Bid with Groupon Investment?,” Fortune, February 15, 2016.)
Alibaba wants to compete in the “group buying sector.” The online search engine Baidu, the Chinese equivalent of Google, has invested in the Nuomi group buying site, a Groupon rival. Thus, its Groupon buy could help Alibaba gain a prime spot in the sector—even if (for now) Groupon has minimal presence in the Chinese market. (Source: Ibid.)
Simply put, GRPN stock investors have reason to expect more investment from Alibaba.