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Groupon Still Searching for Its Best Deal

Posted on Friday, Aug 16th 2013

Earlier this year, daily deals market leader Groupon (Nasdaq:GRPN) fired its founder and CEO, Andrew Mason. Since then, the company’s stock price has doubled in value as the market regains some confidence in Groupon. The stock further strengthened when the company announced their second quarter results along with the appointment of a new CEO. Groupon appointed co-founder and acting CEO Eric Lefkosky as the full-time CEO.

Groupon’s Financials
Groupon’s Q2 revenues grew 7% over the year to $608.7 million, ahead of the Street’s estimates of $606.2 million. Adjusted earnings of $0.02 per share were in line with market expectations for the quarter.

By region, Groupon saw revenues from North America grow 42% over the year to $339.6 million. International revenues continued their decline, with revenues from EMEA down 24% and from rest of the world down 26% over the year. The active customer base grew 12% to 42.6 million for the quarter.

For the current quarter, Groupon projects revenues of $585 million-$635 million. It expects to end the quarter in the range of a loss of $0.01 to earnings of $0.01 per share.

Groupon’s Diversification
Groupon has been converting its core business from the overcrowded daily deals market to other segments. It has sharpened its focus on retailing products through Groupon Goods, which brought in $242 million in revenues last quarter. Groupon Goods began nearly two years ago and now accounts for 40% of revenues. Groupon aims to expand its retail business with select number of SKUs and help promote local merchants instead of focusing on national and international brands. Right now, though, Groupon needs to build scale within the business to be able to manage shipping and infrastructure costs better.

Recently, Groupon also announced diversification into the payments segment. With Groupon Payments, it will now sell card-swiping machines to merchants. The devices being sold by Groupon will be integrated with Groupon payments network, Breadcrumb. The machines are being made by Verifone and will retail for $150 up front. Merchants will also have the option to purchase the machines in installments of $15 per month for a year. Groupon will charge merchants a fee of $0.15 per transaction and 1.8% of the transaction value as fee for processing payments.

Meanwhile, Groupon continued to push its mobile business and recently bought mobile discovery app, Plumfare. Terms of the transaction were not disclosed. The San Francisco–based startup is known for its restaurant-discovery app that lets users connect with their friends by enabling upload of photos of food. Users can buy meals for their friends as gifts. When the friends redeem these gifts, the users are charged the price and Plumfare earns an undisclosed fee. Groupon plans to leverage the purchase to strengthen its mobile business. Of late, Groupon has seen significant traction in this part of the business. Last quarter, within North America, mobile accounted for 50% of sales, and overall the company saw more than 7.5 million downloads for the app.

Groupon’s stock is trading at $9.89 with a market capitalization of $6.6 billion. It touched a 52-week high of $11.22 earlier this month.

The strategy is haphazard and experimental, but at this point, experiments are necessary to find a solid footing and business model.

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