There’s no sugarcoating the truth when it comes online coupons marketplace Groupon (NASDAQ:GRPN). Once a budding star in the rapidly expanding global e-commerce ecosystem, Groupon today is a shell of its former self, and everything that could be going wrong for GRPN stock, is going wrong.
Customers are abandoning the platform as the coupons game is becoming increasingly antiquated. Billings are dropping rapidly. So are revenues. Management is trying to pull expenses out of the operating model, but they aren’t doing so fast enough, and profits are dropping too.
None of these trends are easing, either. Instead, through the first nine months of 2019, Groupon lost 2.9 million customers, marking the worst drop on record.
Naturally, the market is bearish on Groupon stock. Investors broadly do not believe that this company has much staying power in today’s e-commerce landscape. They believe customers, billings, revenues, and profits will all keep dropping. That’s why GRPN stock trades at $2 and change today.
Those investors may be right. But I don’t think they are. For all there is to not like about Groupon, here’s why I think an investment in GRPN stock could pay off handsomely in 2020.
Groupon Has Staying Power
Despite the current customer erosion trends, I believe that Groupon has staying power in today’s e-commerce landscape.
Consumers love discounts. I don’t care who you are — a millionaire investment banker or a single mom working two jobs — consumers love getting discounts on products and services. Sure, today’s consumers don’t have to go to Groupon to get those discounts. There are a great number of other online discounts marketplaces out there. Also, many vendors run discounts directly through their own channels so as to completely skip out the middleman.
But let’s go back to square one: consumers love discounts. Not just some consumers. All consumers. And they will search high and low for discounts across multiple marketplaces.
Because of this, the online discounts game isn’t going away anytime soon, nor will it be dominated by any one player. Instead, there is big enough and diverse enough demand for discounts to support multiple online discounts marketplaces.
Groupon will inevitably be one of those marketplaces. Sure, the platform is shrinking today because of a rapidly changing discounts market. But Groupon still has 45 million active customers. That’s simply too many to say that, once this market stabilizes, Groupon won’t be one of the last places left to find a good discount on an oil change.
Growth Trends May Stabilize in 2020
Regardless of my belief that Groupon has long-term staying power, I understand that GRPN stock won’t reverse course and rebound until Groupon’s growth trends stabilize and the numbers prove this staying power.
Fortunately, that may happen in 2020.
Groupon has multiple growth catalysts in the pipeline, any of which could spark customer base and revenue stabilization over the next few quarters. There’s the re-branded loyalty program, Groupon Select, which is in the early stages of rapid growth. As the program gains more traction in 2020, increased spend from these Select members could spark a return to positive revenue growth.
At the same time, the company’s international businesses should be boosted by easing global geopolitical tensions and improving global economic activity. A recently redesigned web page and soon-to-be redesigned mobile app have the potential to attract (and keep) younger discount-seeking consumers. Continued expansion of the company’s Open Platform could also provide a nice revenue tailwind in 2020.
Big picture — there are several growth drivers in Groupon’s pipeline, and all Groupon needs is for one of them to work in order spark growth trend stabilization across the whole company. Such stabilization would naturally lead to a huge rally in GRPN stock, given how beaten-up (35% off 52-week highs) and cheap (10-times forward earnings) shares are today.
Bottom Line on GRPN Stock
I get it. There’s a lot not to like about Groupon and GRPN stock. But for all those things not to like, there are two major reasons why I like GRPN stock in 2020.
One, Groupon has long-term staying power in the e-commerce landscape, and the numbers will start to support that staying power thesis in 2020. Two, if growth trends do stabilize in 2020, GRPN stock could take off like a rocket ship.
As such, I think it’s worth playing the contrarian here. At 52-week lows, Groupon stock looks quite attractive to me.
As of this writing, Luke Lango was long GRPN.
