Groupon Floods Inboxes, But Can it Keep its Head Above Water?
Groupon (NASDAQ:GRPN) is a hard stock to follow. It’s up, it’s down; it’s on the point of collapse, it’s booming. Which one is it, Groupon? While some are quick to capitalize on its recent success story — Deutsche Bank (NYSE:DB) recommended investors buy on Friday — others are more weary to jump back on the bandwagon.
But credit should be given where credit is due, and Groupon has shown some remarkable resilience. While some anticipated its collapse not too long ago, its stock climbed 12 percent by the end of last week. And the company has undoubtedly made its way back up from its low in November, and is showing signs of improved cost management — posting figures in the first quarter that demonstrate its revenue is no longer being conceded to high marketing costs, compared to 2011 when they were absorbing over half of it.
Groupon has also improved its business model so as to cater better to customer needs. While it used to rely on the strategy of flooding user inboxes with deals that could expire before the consumer even got to them, it now keeps its site brimming with deals that can be used when customers want them.
But the question remains, can Groupon maintain its traction long-term, realizing its profit-margin goals while also facing tough competition from rivals like Amazon.com and (NASDAQ:AMZN) and Google (NASDAQ:GOOG), which both promise not to go anywhere anytime soon?
If the company wants to maximize the efficiency of its world-wide sales force, it must organize its international segment. This new entity would undoubtedly set Groupon up to more effectively meet its long-term margin goals while maintaining its “indirect business” and developing its new “direct” business of selling products. It aims to increase the profit margins for both of these segments, targeting an increase to 25-30 percent from 15 percent in 2012 for its coupon business, and looking at an 8 percent growth for its direct sale of products sector.
If Groupon can realize these goals, The Wall Street Journal predicts that the value of a share could be at $9.70 by 2016 — 27 percent above the price the company posted last Friday. But if Groupon doesn’t deliver, and instead only gets some of the way there, it could end up with a value only slightly higher than the close Friday, allowing it to survive, but failing to do anyone any favors.
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