Groupon Gives Freebies a Shot: Will Customers Bite?

Groupon

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Groupon Inc. (NASDAQ:GRPN) has been a roller coaster for investors. After a turbulent couple of months following its initial public offering in November 2011, shares began a fairly steady decline from highs near $25 in January 2012 to all-time lows below $3 in November 2012, just two years after its IPO.

Groupon’s decline was the result of number of factors. For a period (and still to some degree) it had trouble convincing investors that its business model was actually functional. Like many Internet companies, Groupon went through a phase of enormous growth and hype, breaking $1 billion in revenues in near-record time and attracting the kind of valuations that savvy investors would naturally attach to such a high-growth stock.

But the earnings never came through. In its first earnings release as a public company in 2011, Groupon reported an operating loss of $15 million, a non-GAAP loss of 6 cents per share.

But revenue and customer growth was strong. That quarter, Groupon reported 33 million active customers. By the third quarter of 2013, that number had increased to 43.5 million and operating income had turned positive at a gain of $13 million.

One of the cornerstones of Groupon’s success has been its ability to position itself as more than just a deals platform. With an intense focus on the consumer and a knack for mobile, Groupon has been able to promote itself as a full-blown commerce platform and appears to be taking more strides in that direction.

On Wednesday, Groupon announced the launch of Freebies, a service within its e-commerce marketplace that gives customers access to offers from 5,500 major brands including American Eagle (NYSE:AEO), Best Buy (NYSE:BBY), Macy’s (NYSE:M), and Nordstrom (NYSE:JWN).

“We want to save customers money everywhere they shop — whether it’s their local coffee shop or a large department store,” said Rich Williams, senior vice president of global marketing, in a statement. “With top brands, a huge selection and exclusive offers, Freebies is another reason to always check Groupon first.”

Investors did not seem to react to the news, as shares fell as much as 4.4 percent in afternoon trading on Wednesday. Shares are down more than 10 percent over the past five-day period following news that insiders were selling shares. CEO Eric Lefkofsky sold approximately 450,000 shares last week.

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