A New Edge for This Social Media Company

WenYu is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The evolution continues for Groupon (NASDAQ: GRPN), and more upside is still expected for this turnaround company, whose share price surged over 86% year to date. From unbeatable prices to restaurant reservations, Groupon is taking a step further to leverage its brand and platform to boost transactions. Groupon has just launched Groupon Reserve, giving customers a discount without pre-payment or vouchers while allowing local businesses to drive traffic.

Groupon Reserve, which is currently available in 10 cities, allows customers to book tables at selected restaurants at discount of up to 40%. With Groupon Reserve, Groupon is expanding beyond one-time deals to constant offerings. Groupon Reserve will expand into other categories, such as spas and hotels. By the end of 2013, Groupon Reserve is expected to expand into more cities in the United States and in certain international markets.

The edge

By acquiring Savored.com, a restaurant-reservation portal, in September 2012, Groupon gained an edge with Savored.com’s proprietary technology to search restaurant availability and identify the highest possible discount. Groupon Reserve’s capabilities are further strengthened with Groupon’s payment processing abilities and point-of-sale solutions.

Groupon Reserve is initially aiming for upscale offers and exclusive experiences to meet the growing demand from consumers. Higher margin restaurants are able to provide larger discounts, so the restaurants are not operating at a loss. Furthermore, Groupon Reserve provides these restaurants with a yield-management solution to bring customers at the times they need them the most. By building a long-term, win-win relationship with vendors, Groupon gains an edge in the long term and can continue to shed its cost to find deals and acquire new customers.

Challenges and competitions

Groupon is struggling in its daily deal services. Groupon's daily-deal business model is not working out well, especially in the mature markets. Net deal revenue per subscriber in North America has declined steadily from an estimated $22.40 in 209 to around $14.20 in 2012. Groupon Reserve could help boost the revenue growth and achieve a more sustainable, growing revenue model. However, another major direct competitor, OpenTable (NASDAQ: OPEN), has been taking a step further. OpenTable, a leading provider of online restaurant reservations, has acquired JustChalo, a mobile technology company, in early June. OpenTable is leveraging JustChalo's mobile expertise to enhance the mobile experience for diners as the diners continue to shift toward mobile devices for booking. With the growing mobile trend, Groupon is also planning to step up on this end and is aiming to boost its mobile offerings.

OpenTable is also expanding its alliances. Yelp (NYSE: YELP), a leading restaurant review website, has integrated OpenTable's online reservation system directly into its platform. Yelp is also offering home-delivery services through partnerships. Yelp allows its customers to take the next step to complete the transaction. It continues to focus on connecting local businesses with consumers. Yelp is now offering a one-stop shop by integrating review, reservation, and order, as well as the check-out process. Yelp’s partnership with OpenTable also expands its mobile reservation capabilities, allowing Yelp to participate the increasing mobile trend.

Financially, among Groupon, Yelp, and OpenTable, OpenTable has the most solid fundamentals and is expected to generate an EPS of $1.93 with a sales growth rate of 16.20% for 2013. Groupon’s sales number is also expected to increase by 9.2% by 2013. Lastly, although Yelp is operating at a loss this year, it is expected to turn a profit by 2014. Yelp’s revenue is expected to grow by 59.60% for 2013 and 43% for 2014.

Foolish takeaway

Groupon has been a successful turnaround story since the beginning of 2013 as the company is turning into more than a daily deals company, a change cheered by investors.  By launching Groupon Reserve, Groupon strengthens its ties with local businesses and can further leverage its platform and traffic to boost revenue. Although the competition between Groupon and the OpenTable/Yelp alliance will pick up, all three companies are expected to ride the growing mobile trend and will continue to benefit from social and local themes.

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WenYu Huang has no position in any stocks mentioned. The Motley Fool recommends OpenTable. 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!

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