We Need A Market Hero
Gerelyn is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
In this era of "extreme couponing," why aren't coupon stocks -- mainly Groupon (NASDAQ: GRPN) -- performing any better than they are? There are consumers who are always looking to save money, and during times of heightened awareness about the precarious state of the economy and a stock market seemingly in free-fall, these companies should be ringing up higher sales than ever. In fact, this should be their moment in the sun, an opportunity for businesses that perpetuate cost savings to be the heroes of this market. So, what gives?
Groupon's market value has lost about 85% since the company's IPO on Nov. 4, 2011. In Groupon's attempt to turn things around, it just might be looking in the right direction. The company has recently promoted someone with career roots in two online standouts -- eBay and Amazon.com. Kal Raman was bumped up to the position of chief operating officer, with a mandate to turnaround Groupon's international business. If anyone can turn this struggling business around, a technology veteran with some two decades of industry and top-management experience should be the one for the job, right? But will the “Raman Effect” be enough?
Raman's experience, particularly his time at Amazon.com, seems to resonate with the path he has ahead at Groupon. Raman oversaw "global non-media business for retailers and sellers," according to a press release. At Groupon, he is already credited with "increasing the number and quality of local businesses using the Groupon platform," the press release indicates.
Nonetheless, for a seemingly young individual, Raman has skipped around a bit. In addition to eBay and Amazon.com, he also has career experience at Wal-Mart, Drugstore.com and a couple of other smaller companies. Turnover is not something that would help the struggling online coupon distributor's turnaround story.
If Raman is going to write the Groupon turnaround story, he is most likely not going to be able to go it alone. According to an S-1 filing issued by DiscountCoup.com, one in which the company is preparing for an OTC listing, the competitive landscape is explained:
"In addition, we expect to face increased competition from other internet and technology-based businesses such as Google and Microsoft, each of which has launched initiatives which are directly competitive to our business." (DiscountCoup.com S-1 filing.)
Incidentally, Groupon also employs former Google executive Jason Harinstein, who, prior to joining Groupon in 2011 as senior vice president of corporate development, served in a similar role at Google.
David and Goliath
Google's (NASDAQ: GOOG) Google Offers goes head-to-head with Groupon's daily deals, as does Microsoft's (NASDAQ: MSFT) Bing Daily Deals offering, the latter of which aggregates daily deals from other platforms, including Groupon. With a market cap of about $2 billion versus Google's $212 billion and Microsoft's $225 billion, Groupon is clearly the underdog in a market niche it helped to make.
Nonetheless, Groupon has a thundering herd of some 11,475 global employees dedicated to cultivating merchant relationships and finding its own deals for consumers, according to a 10-K filing. And not that you have to be a pure-play to succeed, but Google in particular is such a diverse company, considering its recent wind-farm investment in Iowa, while Groupon could be a great independent if investors could only come to depend on its performance.
In its 3Q, Groupon's troubles were in quarter-over-quarter comparisons versus year-over-year results (see below.)
Andrew Mason, Groupon's chief executive, stated in the company's 3Q earnings report: "Our solid performance in North America was offset by continued challenges in Europe." Indeed, international sales grew a meager 3.1% compared with 31% in the 2Q. Groupon gained exposure to the European markets via its 2010 acquisition of CityDeal, a Germany-based daily-deal provider.
The company's 3Q cash flow also suffered, falling 35% to $42 million versus $64 million last year.
The Dow Jones Industrial Average has surrendered much of its gains for 2012, and of course Groupon's performance has just been abysmal. While the superhero that the markets need to lift it out of the doldrums may just be a tech play, Groupon is probably not going to be the one. Perhaps it expanded too much too fast. Nonetheless, Groupon intrigued investors once before and at least it is attempting to right its ship with the most recent executive shuffle. Hopefully, it's not too late.
GerelynT has no positions in the stocks mentioned above. The Motley Fool owns shares of Google and Microsoft. Motley Fool newsletter services recommend Google and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.