Why I Sold My Groupon Stock
Sam is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Last week, I exited my position in Groupon (NASDAQ: GRPN). Although it’s been a great performer since last November, the company seems to be struggling in its transition away from daily deals.
In particular, there are quality control issues with the company’s goods and vacation businesses. At this point, the idea that Groupon could challenge Amazon (NASDAQ: AMZN) or eBay (NASDAQ: EBAY) in online commerce seems far-fetched.
Groupon gets away from daily deals
In recent months, Groupon has been transitioning away from the daily deals that made it famous. Now, Groupon is attempting to become a deals marketplace, a site for consumers to browse and buy long-lasting local deals, goods and vacations.
This has led some to compare Groupon’s latest strategy to Amazon or eBay. Motley Fool’s own Tim Brugger asked, “Is Groupon Trying to Become the Next Amazon?”
The problem with Groupon Goods
In discussions with analysts and investors, Groupon has been emphasizing its Goods business. With Goods, Groupon leverages its audience of deal seekers to sell items that would have otherwise been difficult to move. (Examples include refurbished laptops, off-brand smartphone cases and subscriptions to “-of the month” clubs.)
From a business perspective, Goods has some challenges -- namely, margins. As Groupon has limited expertise in selling physical goods, it must outsource its warehousing and shipping. Right now, the company is only targeting a margin in the high single digits.
But the bigger problem might be the actual process of buying goods from Groupon. Put simply, it’s awful.
To test the process out, I bought a speaker set off Groupon Goods nearly two weeks ago. As I write this, Groupon still hasn't shipped it. Groupon freely admits that its goods can take some time to arrive (“most items are shipped within 2 and a half weeks”) but that still doesn’t change the fact that it’s a terrible experience for the customer.
I could've bought the same item from Amazon. It would've cost me 25% more, but as a Prime subscriber, I would’ve had it within two days. As it stands, I have no idea when I’ll receive the speakers -- making Groupon Goods useless for any time-sensitive shopping.
Groupon’s nightmare vacations
Another area of Groupon’s business -- Groupon Getaways -- might have even worse quality control.
Last week, ABC News slammed Groupon for a vacation deal. According to ABC, a resort in the Dominican Republic was misrepresenting both the size of the discount offered and the quality of its accommodations.
Groupon removed the deal from its site, and issued refunds to the customers that had bought it. However, as Groupon is asking its customers to pony up hundreds or thousands of dollars upfront, a poor reputation could wreak havoc on vacation sales.
Competition from Amazon and eBay
While Groupon works to become more like Amazon or eBay, those companies are going after Groupon’s core business.
Amazon is playing the daily deals business from two angles. The first is AmazonLocal, a locally-based, daily deals website directly integrated with Amazon’s larger marketplace. The second is the company’s investment in LivingSocial, perhaps Groupon’s biggest competitor. Amazon owns roughly one-third of LivingSocial.
For its part, eBay has a daily deals website -- goods sold at a discount for a limited time. It also has lifestyle deals, which are locally based and primarily consist of services (haircuts, teeth whitening, massages).
Investing in Groupon
Groupon has had an amazing ride since last November -- shares are up an impressive 210%. However, the company seems to be facing quality control issues, while the companies that it's striving to compete with are expanding into Groupon’s core business.
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Sam Mattera owns no shares in any company mentioned. The Motley Fool recommends Amazon.com and eBay. The Motley Fool owns shares of Amazon.com and eBay. 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!