Groupon (NASDAQ:GRPN) is moving into its 11th year, and while it controls its niche, it continues to have troubles making it work consistently.
Its auspicious beginnings as a publicly traded company in November 2011, saw the share price hit it all-time highs during that IPO feeding frenzy. It may not have been that long ago, but at the time e-commerce was a wild west and the Groupon model had some serious promise.
Back in late 2011, GRPN stock was selling around $26. Today, it sits around $3.60. And in between, it has been a long, slow slide down to that level.
The premise for GRPN stock was solid, and still remains the strongest part of its business, at least in the sense that it’s the highest-margin part of the business. It’s essentially a way for local businesses to access new customers with discounts via emails from Goupon (and a website). You find the deal you want, print it out and take the coupon to the business and get the service at a discount.
This kind of location-based marketing was a very cool idea back then because it managed to overcome some of the technical obstacles that existed at the time. It was a great marriage of high tech and low tech.
GRPN Stock Can’t Move Forward
When it had proven its viability and swallowed most of its competition, it got some money to grow — and grow it has. Groupon now has global operations. According to the company, it added around 260,000 new international customers in Q3 2018 and saw $102 million in annual gross profit.
It is also aggressively pursuing and expanding partnerships with various consumer-facing firms like GrubHub (NYSE:GRUB), Tickets.com and GolfNow.
But the problem that is holding the stock back is, it can’t seem to transition from the reliable coupon model to a more frictionless mobile or digital model. Well … it can and it has begun to transition, but the margins just aren’t as attractive as the old model. Essentially it used a model to scale successfully to a global marketplace but now has to rebuild its delivery platform to attract new customers. This is the current challenge.
And while it has made positive steps in the right direction, using card-linked efforts to make mobile a more important part of its business, it is having trouble making the numbers work.
Its traditional service is a relatively easy platform to service and fulfill. With digital, it means more tech heavy lifting, since printing coupons is no longer an option. Now, GRPN is adopting a credit/debit-card linked option where you add a card and then the discount for the service is linked to the card. Use the card to pay and the discount is applied.
The problem is, cards take a cut of the revenue. And building out that architecture costs money. Making this transition is going to be challenging.
My Portfolio Grader rates GRPN a D right now. It’s unloved, but that doesn’t mean it will join the tech growth rally any time soon. And as far as earnings go on Feb. 12, don’t expect disaster but don’t count on brilliance, either.
Louis Navellier is a renowned growth investor. He is the editor of four investing newsletters: Growth Investor, Breakthrough Stocks, Accelerated Profits and Platinum Growth. His most popular service, Growth Investor, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.