Discretion Is the Better Part of Groupon
AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Last week, Groupon (NASDAQ: GRPN) rolled out a new service to big cities in the U.S. that combines the restaurant reservation service of OpenTable (NASDAQ: OPEN) and the dining discounts of restaurant.com, but best of all, a dining discount is automatically applied to your bill...no coupon embarrassment.
It is Groupon Reserve and available in NYC, Chicago, LA, Washington DC, Denver, Miami, Atlanta, Philadelphia, San Francisco, and Boston. At the Groupon Reserve website, pick your city, date, time, and number of people and results come up showing various high-end restaurants and the amount of the discount. The best deals come with weekdays and what is called in the restaurant biz, "the shoulder," the off peak lulls between lunch and dinner and after the main dinner rush.
Like restaurant.com deals, most restaurants will tack back on an 18%-20% gratuity to the bill. Noodling around NYC for a Tuesday reservation at 3:30, the best discount was 20% although at other times and cities discounts can be up to 40%.
The little tweak of no voucher, no coupon, no pre-payment may be what puts Groupon Reserve over. The service is powered by Savored.com's reservation engine which Groupon bought last September. Right now, Reserve is featuring only restaurants but will expand to other high end offerings like spas, salons, entertainment, and hotels by the year's end both in the U.S. and overseas.
A hit to the breadbasket
This is a direct hit to the breadbasket for OpenTable, the restaurant reservation company. OpenTable's business model is the initial restaurant payment of up to $700 for its touchscreen Electronic Reservation Book system with subscription payments of $199 monthly. One table booked per month can easily justify the subscription.
Despite its high trailing P/E of 57.10, it has grown revenue by 29.90% over five years and EPS by 42.08% over three years. Its stock is down over 10% from its 52 week high of $72.18. Its market cap is $1.4 billion.
The company expects to grow revenue again this year by over 20% domestically and by over 50% globally as the first mover in the online reservation space. Analysts may trim their domestic revenue expectations with Groupon's entry.
Although OpenTable has 15% share of U.S. diners who dine in reservations-needed establishments, Groupon Reserve has 600 top restaurants lined up in its first week and secret cheapskates and other diners get a discount with booking through Reserve, which they don't at OpenTable. The stock has the highest short interest of these at 20%.
Plethora, surfeit, glut of competitors
Groupon Goods and Deals still has major competition from all the daily deal sites including Amazon.com (NASDAQ: AMZN) with its stake in Living Social, Groupon's most direct competitor, and its own Amazon daily deals.
Groupon has teamed up with Expedia for its Getaways travel deals. In this arena, Groupon competes against Priceline.com and the other travel deals sites.
Not having an impregnable moat is always the sticking point with Groupon. Another problem has been the dissatisfaction of the business owners who offer deals, especially small businesses, as the initial success of the first wave of Groupon vendors did attract new business.
Soon however, small businesses discovered Groupon deals attracted the wrong kind of customer: querulous and demanding; often hurting the businesses' reputation by complaining on Yelp!. Even if they were horrible customers, they didn't come back. It was too much like the old joke, "the food was terrible... and such small portions!"
Groupon has tried to address this since businesses' ire hit critical mass in 2011. Groupon campaigns are now more flexible for volume and duration and the company boasts a half million satisfied businesses and over 41 million customers. According to a 2012 Foresee survey, 91% of Groupon deal users returned or planned to return to a business after the initial Groupon deal.
The company ousted co-founder and CEO Andrew Mason in March, helping the stock quadruple from a low of $2.60 to close at $8.95 on July 2. New CEO Eric Lefkofsky has had some success improving market sentiment. On July 2, Wunderlich Securities initiated coverage with a Buy.
Groupon is offering new business solutions to the restaurant and hospitality businesses like Breadcrumb, an iPad-based app credit card reader similar to Go Payment from Intuit (NASDAQ: INTU), PayPal from eBay, and Square.
Intuit sold off its financial services division on July 1, shedding its financial software for banks and hospitals divisions to concentrate on core competencies, small businesses, and tax preparation. I already liked Intuit for its business solutions for small businesses, management, and savvy acquisitions. Its reorganization is promising and helping to buoy the stock.
Intuit trades at the most reasonable trailing P/E of all these names at 21.45, offering a 1.10% yield at a 29% payout ratio. It has a five star CAPS rating. The balance sheet is fairly clean with total cash of $2 billion and $500,000 in total debt, but not as clean as Groupon with no debt and $1.17 billion in cash, or OpenTable with zero debt and $96.55 million in cash.
Groupon's biggest competitor is e-commerce titan Amazon. Amazon's forward P/E is 88.67 and its market cap is $129 billion. The stock is near all-time highs...again as smaller competitors like Barnes & Noble fall to the wayside with Barnes & Noble forced to drop the Nook.
Amazon's Prime streaming membership, its original content, Fires and Kindles are all pathways to the e-commerce site where almost anything one could want from pet supplies, books, tools, and fresh groceries can be delivered to your house with ever increasing swiftness.
Despite a 15.22 price/book and a negative profit margin of 0.14%, Amazon continues to crush shorts. Analysts have a 37.15% five year EPS growth rate. While the fundamentals may scare a value investor, growth investors smile ear to ear like the Amazon logo.
Ssshhh..here's a tip
Groupon users are famously poor tippers, yet Reserve could be a tipping point for Groupon. The stock moved over 3% just on the Reserve announcement so the market likes it. OpenTable traded down on the news on possibly justified fears of declining market share.
Amazon is not competing against Reserve and is just unstoppable with new initiatives and good news. Intuit's the value name here and its reorganization looks good.
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AnnaLisa Kraft has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Intuit, and OpenTable. The Motley Fool owns shares of Amazon.com and Intuit. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!