A number of popular coupon websites went public in the past few years, and frankly, I was surprised that some of them actually did.
The obvious reason is so that management could cash out, because a close look at these coupon stocks reveals that they really don’t do anything special, don’t solve problems, and have numerous problems.
Now, nobody can blame management of coupon stocks for trying to cash out. The problem is that naïve investors have to be careful when examining coupon stocks. Sure, coupon stocks have familiar names and they seem to have large user bases, but the business models are not robust.
The other quirk is that, as lousy as these coupon stocks are, there’s nothing to stop some idiot from buying them out for far more than they should be purchased for. Given that OpenTable and LinkedIn Corp (LNKD) were purchased for ridiculous sums, anything can happen.
Coupon Stocks to Trash: RetailMeNot Inc (SALE)
RetailMeNot Inc (SALE) drives me nuts. It was once a great way to find coupons for websites to get discounts. Now, I rarely find a coupon that is either applicable or that actually works. Maybe that’s why total revenues were only up 1%, total website visits were down 7%, and SALE lost $3.6 million in the quarter just reported. It did make $11.8 million last year, and has about $200 million in net cash.
But answer me this — why is SALE trading at a market cap of $530 million? Why was the stock up 16.5% on a day when the company reported a loss?
Because investors are insane. There is no legitimate reason for SALE to be trading anywhere near this valuation. The company is going nowhere, it offers a product that I don’t care for anymore, and it has nothing proprietary about it.
Coupon Stocks to Trash: Groupon Inc (GRPN)
It’s hard to believe that Groupon Inc (GRPN) once had a market cap of over $14 billion. Today, it’s closer to $3 billion, and that’s still a silly amount of money for this company.
Groupon is nothing more than a RetailMeNot, but more effective. Companies throw excess inventory at GRPN, as well as heavily discounted deals as a way to acquire new customers.
It’s a great idea, but there’s nothing proprietary about it. Therefore, GRPN stock is beholden to becoming the big brand name in the space. There’s yet another problem, however, because there are competitors. Customers do not care about GRPN if they can get a better deal elsewhere.
GRPN stock doesn’t boast an operational profit. Net income was $20 million last year, but only because of a tax benefit and revenue from discontinued operations. It lost $122 million in the last nine months alone. It has a lot of cash, but much of it offset by debt. At $5 per share, it’s still a disaster.
Coupon Stocks to Trash: Yelp Inc (YELP)
Yelp Inc (YELP) has its own set of problems.
It’s not a coupon stock, but I lump it into the same category because it’s just a review site. There’s nothing proprietary about it. It doesn’t solve a problem.
In fact, it isn’t even reliable. If you’ve ever paid attention to review sites, there are many times that disgruntled customers post numerous reviews bashing a business. Other times, businesses post phony reviews.
Yelp has a brand identity, and that certainly helps. In fact, of all these coupon stocks, YELP stock is the most likely to get bought out at some point for exactly that reason.
But its business stinks. A $10 million loss in fiscal year 2013, a $33 million loss in FY15, and an $11.3 million operational profit in FY14 does not a great business make. It also lost $15.4 million in Q1. It has $375 million in cash and short-term investments and has no debt, so it isn’t going anywhere, but a $2.8 billion valuation on a money-losing company is insane.
As of this writing, Lawrence Meyers has no position in any stock mentioned.