Good for Groupon!!
AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I keep telling my teenager that I am NOT a Luddite but I will admit one of the more odious tasks of my day is deleting emails. I don't know why it sticks in my craw so much but there it is. It's not just the letters from my dearly beloved Nigerian friends who want my bank routing number or the pitches for Canadian Viagara (sic) but the daily deals I get every day and feel I just have to read on the one chance in 10,000 I might actually be able to use it. I used the figure 10,000 because I get at least 20 of these a day.
That can't be good for Groupon (NASDAQ: GRPN). This lack of a moat for competition is something that's been beaten to death in the financial media. Every newspaper, TV station, and radio station has their version of local deals. In my area alone The Washington Post has online deals along with the freebie community paper that's thrown at the back of my garage. CBS has local online deals, I get that one, too. Then there's Living Social, RedPlum, Scout Mob, and about a hundred other two-word deal sites. In two years I have only puchased four Groupon deals. I have chronic deal fatigue syndrome.
A similar competitor, Travelzoo (NASDAQ: TZOO) has also branched out into local deals. Travelzoo has a much smaller market cap of 347.79 million, but at least it has earnings per share of $1.29 which gives it today's PE of 16.96. Still it has come down dramatically from a 52 week high of $90.80 to just barely bumping along from its 52 week low of $20.68.
It seems anyone can start a deal site in their basement. You can be a deal developer as long as you have one person to make the deals with the small businesses and someone else to man the computers. Actually, that would make a great assignment for my kid's high school web design class. As long as a customer doesn't have to pay retail you're in business. I asked my kid if her high school would consider a project like that and she said it would have to be non-profit. "Ah.. my point exactly, just like Groupon," I replied.
Groupon, Inc. has been poleaxed since coming public, trading below its IPO price ... never a good sign. But today when I was planning to diss the stock because I am actually getting irritated by these deals I read that Groupon is partnering with TNT for a "Live Like the Ewings" package, including first class airfare to Dallas, high end hotel stay, and a makeover, all worth $10,000 and selling for under $2,000. Hallelujah! Big D here I come!
Finally, I think Groupon may have discovered its calling: partnering with large companies and offering an extraordinary, unique deal. This ramp up in the scale of a deal may be exactly what sets Groupon apart from all the other sites offering chiropractic visits, mani-pedis and dental cleanings. Haven't the chiropractors caught on that they'll see probably 98% of these people once and have worked their fingers to the bone for nothing? What about the dentists and beauticians who've worked tooth and nail? I will not extend this pun theme any further with those who offer colonics.
This is not to say I am endorsing Groupon as a buy. Whoa, no. It has stunningly cratered from $31 to a recent low of $8.80 and has negative earnings per share of -.54. But it may no longer be the sure short it was. Also, the Facebook debacle took its toll on all the social media stocks, save LinkedIn.
For a company with over 11,000 employees and a $6.2 billion market cap, Groupon should be devoting all their sales and marketing staff to crafting these memorable, once-in-a-lifetime deals. Until they can show a few quarters of growth from this newly promising strategy to differentiate themselves from all the daily deal noise, I can only consider this one of the more speculative stocks of the social media space.
leglamp has no positions in the stocks mentioned above. The Motley Fool owns shares of Facebook and LinkedIn. Motley Fool newsletter services recommend LinkedIn and Travelzoo. 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.