) stock fell over 15% in trading following the company's Q4 2013
earnings announcement. Even though the results were generally good,
the outlook didn't appeal to the investors. The key message was
that the company is still trying to find the right strategy to
create a long-term sustainable business, and therefore, certain
investments might put short-term pressure on its profits. We
believe that the stock price corrected itself to some extent to
better reflect the reality. While gross billings grew in North
America and the EMEA region, the rest of the world saw a decline.
Even growth in the domestic market is not as brisk as before.
Groupon needs to cut down on irrelevant emails, focus on activating
mobile subscribers and reduce the number of 'null' searches by
enhancing its catalog of deals.
We are reviewing our price estimate for Groupon in light of
recent earnings and will have an update ready soon.
Our current price estimate for the company stands at
, implying a discount of about 25% to the market price.
Check out our complete analysis of Groupon
Groupon Still Finding The Right Mix
The biggest improvement that Groupon can make to its service
right now is increasing its relevance and utility. This implies
that customers should be able to get desired deals at or near the
time when they intend to use them. Currently, the company sends its
subscribers over 250 million emails everyday and a large number of
them are irrelevant. Also, emails tend to be less engaging and
Groupon would be better off directing its subscribers to its app
and website. The company is already doing this, which is evident
from the fact that its mobile app witnessed more than 33 million
downloads in 2013, and mobile accounts for almost half of its total
transactions now. Also, it is encouraging subscribers to browse
through its website and find the deals in real time. However, far
too many of them are still not aware of this facility and instead
rely on emails. This suggests that Groupon needs to ramp up its
marketing which may put some pressure on its margins in the near
The user experience can also be affected by 'null' search
results, which are only going to reduce with time as the company
gets more merchants to its website. In order to build a sustainable
business, Groupon will need to ensure that its customers keep
coming back for more. This can only happen by increasing the
relevance, flexibility and utility of deals. The revenue growth
will suffer temporarily as users shift from email marketing to
mobile app and real time browsing, but from a long-term
perspective, this is the right way to go. The company could try to
speed up the time it takes to activate a new customer who downloads
its app. This will again require higher marketing spending, thus
creating near-term cost pressure.
Groupon's focus is rightly changing from customer acquisition to
customer retention. Finding the right mix of deals, take rate and
marketing strategy is going to take some time.
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