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The Outlook For Groupon

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The First Few Years of Groupon – A Rollercoaster Ride

The Outlook For GrouponBecause of its checkered past, the outlook for Groupon (NASDAQ:  GRPN) is quite unclear, but appears to be improving, as new management implements their business strategy.  Groupon, which was the brainchild of a young and controversial web developer named Andrew Mason, is one of the more interesting stock stories on Wall Street in recent years.  At one time, Groupon was one of the fastest growing companies in the United States and one of the hottest Initial Public Offerings (IPOs), only to see its fortunes decline rapidly as a public company, which resulted in the departure of Mr. Mason and a new business plan that appears to be working, at least initially.

Groupon was found by Mr. Mason in November 2008, with the idea of using the power of the Internet to do advertise daily deals via email to consumers always on the prowl for good deals on products and services.  The concept was first tested in the Chicago area and then expanded to Boston, New York City, Toronto, and then to many major metropolitan areas.  Mr. Mason rapidly expanded Groupon into international markets, and by October 2010 was servicing approximately 100 markets in Asia, Europe, and South America, plus approximately 150 markets throughout North America.  Continuous losses from this rapid expansion, Mr. Mason’s unorthodox way of running a public company, and a number of accounting issues, put Groupon’s stock GRPN into a death-spiral, going from $29.52 shortly after it IPOed to $2.93 after it released dismal 3rd Quarter 2012 earnings in November 2012.  By late 2012, many analysts questioned whether Groupon could survive as a company.  Groupon’s future and stock price hung in limbo, as Mr. Mason remained as Groupon’s Chief Executive Officer (CEO) during early 2013.

Groupon Andrew MasonGroupon’s 4th Quarter 2012 earnings report, which was released in February 2013, was another dismal disappointment.  At this point Groupon Board of Director Members, Eric Lefkofsky and Ted Leonsis, were ready to take drastic measures to save the company and relieved Mr. Mason of his duties as company CEO on February 28th, 2013, the day after the 4th Quarter 2012 earnings report.  Mr Lefkofsky and Mr. Leonsis assumed the roles of temporary co-CEOs of Groupon.  The change in management, and subsequent change in business plan, was cheered by Wall Street, making Groupon one of the biggest gainers of 2013, having tripled in price from its 52 week low of $2.93 to trade above $9 per share in July 2013.

What Changed The Outlook For Groupon?

After the 1st Quarter 2013 earnings report in May 2013, four analysts raised their outlook for Groupon’s stock GRPN after reviewing the company’s strong earnings report.  Since then, GRPN has risen from around $6 per share to above $9 per share.

The difference is perception within the Wall Street investment and analyst community.  When Andrew Mason was in control of the company during late 2012, many analysts and investors wondered if Groupon could survive as an ongoing concern.  Losses were mounting and Groupon appeared to have no clear plan for refocusing its business to become more profitable.  Now with founder Andrew Mason gone and more business savvy people running the company, it appears Groupon is on track to transform into a sustainable business model, as the company curtails international expansion and seeks to enhance and expand its existing high-margin services to small and medium sized businesses.

The Outlook For Groupon | What Does The Future Hold?

Groupon Daily DealsGroupon certainly was thought of fondly by many investors when the company went public in November 2010, although some analysts had reservations about Groupon’s business model and account practices.  With few competitors in the daily deals business at that time and incredible growth in subscribers from only 400 subscribers when the company was founded in 2008 to more than 200 million subscribers today, Groupon was a darling of investors looking to get in on a fast growing Internet 2.0 company.  The positive feelings towards Groupon quickly faded, as big competitors such as Amazon entered the daily deals space, and Groupon’s costs and losses rapidly increased.

While it is still quite early to say that Groupon has solved its problems of increasing costs and is on the road to profitability, it does appear now that founder Andrew Mason is gone, new management has already succeeded in increasing Groupon’s sales and has refocused its business by cutting costly international ventures and focusing on higher margin parts of Groupon’s business.  As of the middle of 2013, Groupon has grown to a market capitalization of more than $5 billion, with annual revenue greater than $2 billion, and quarterly revenue growth on a year over year basis of approximately 7.5%.  Profitability still appears to be a few quarters off, but Groupon’s new management has the company heading towards profitability.

In one of best signs that the worst fears of Groupon’s detractors have been overblown and the company will remain in business for the foreseeable future, institutional investors have not given up on Groupon, with nearly two-thirds of the company being held by large institutions.  Insiders still hold a sizable portion of Groupon as well, and do not appear to be looking to find an exit.

One of the ways that Groupon’s new management is increasing sales is by refocusing Groupon’s marketing efforts from the original concept of only sending out mass email Groupon deals to also offering deals on the Groupon website.  For a long time, many Groupon users complained that the Groupon site did not have a search function for finding daily deals or products being sold by Groupon Goods.  That has changed during 2013, and it appears to be having a positive impact on sales, as customers that find daily deals on the Groupon site are more likely to purchase more than one deal at a time than those that find out about deals via emails.

Of course, like many other companies involved in selling goods and services, Groupon’s fate will be largely determined by the health of the economy, as consumers need disposal income to take advantage of Groupon’s daily deals.  Groupon also has large competitors such as Amazon to contend with; however, Groupon has maintained its dominant role in the daily deals space, which brings with it sales power that others do not have.  A major development to look out for regarding Groupon will be the announcement of a new CEO at some point in the future, who will likely have a number of ideas regarding how to expand and grow Groupon’s business, which could be a positive catalyst for Groupon’s stock GRPN.

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