RetailMeNot Scores Big With Retailers And Consumers

By
A A A

Boy, do we have a deal for you!

It's a message that rang out loud and clear over the holidays as retailers used aggressive promotions to boost sales and gain bigger shares of a limited spending pie.

Thanks to the help of digital coupon providerRetailMeNot ( SALE ), many retailers could deliver holiday deals directly to consumers via their desktops or mobile devices.


RetailMeNot is the world's biggest digital coupon marketplace.

It aggregates digital coupons and promotes sales from retailers across many product categories -- from clothing and electronics to health and beauty.

In 2013, the company featured digital coupons from 70,000 retailers and brands and had 550 million total visits to its websites.

Market Leader

RetailMetNot.com operates the biggest digital coupon site in America, competing with privately held Dealspl.us, BradsDeals.com, DealNews.com, Savings.com, TechBargains.com and CouponCabin.com.

The company also operates the largest digital coupon marketplaces in the U.K. and the largest portfolio of digital coupon websites in France.

The digital coupon space is about to get more crowded in the public market. Coupons.com is slated to float an IPO this week under the ticker COUP.

In addition to scoring impressive wins with retailers and consumers, RetailMeNot has been a hit with investors since its initial public offering in July. The stock has more than doubled since its IPO and touched a record high of 48.73 on Thursday. Shares fell 11% to 41.77 on Friday.

The company also turned out a strong performance in the holiday fourth quarter, its busiest period. Earnings rose 73% from the prior year to 26 cents a share, topping views. Revenue climbed 55% to $78.5 million, also besting forecasts. Meanwhile, visits to its sites surged 24% to 184.1 million.

From Thanksgiving to Cyber Monday, RetailMeNot facilitated 2.6% of all e-commerce sales in America, CEO and founder Cotter Cunningham said on the fourth-quarter conference call.

RetailMeNot benefited from the shortened holiday shopping season -- with six fewer shopping days from Thanksgiving to Christmas vs. the prior year -- in a couple of important ways.

"From a financial perspective, we saw a heightened level of promotional activity amongst retailers that drove very strong operating results for RetailMeNot in our fourth quarter," Cunningham told IBD. In addition, "we saw significant increases in consumer awareness and use of the RetailMeNot website and our mobile apps due to the strong promotional environment as more consumers used our services to discover savings opportunities on the things they needed to purchase for the holidays.

Watchers expect the company to keep up its winning streak.

Analysts surveyed by Thomson Reuters expect it to post earnings of $1.08 a share in 2014, its first full year as a public company. They see a 25% EPS gain in 2015 and a 25% rise in 2016.

Cunningham started the company in 2009 with the purchase of three small mom-and-pop coupon sites. A year later he bought his biggest competitor -- RetailMeNot -- and adopted the name.

"What's fueled our growth is that we offer great value to consumers and retailers who both keep coming back for more," Cunningham said. "It's a marketplace that's resonating with our two customers: consumers and retailers."

Cunningham says one-third of its coupons featured on the site are contributed by consumers. That lets the firm offer what he calls more exclusive and exciting deals.

Consumers can open a link at the bottom of the RetailMeNot website that says "submit a coupon." They can then upload either the online promo code, used for shopping on e-commerce sites, or they can upload a coupon that can be used in stores as well.

'Relevant Content'

Wunderlich Securities analyst Blake Harper says RetailMeNot features "more relevant content" on its site than rivals, which is why its coupons come up at the top of Google search queries.

With the large amount of content generated by its user base, the content is hard to replicate.

RetailMetNot gets no upfront payment from retailers. It gets a small commission on the sales it helps facilitate, so retailers pay the company only for sales it drives.

"Only 2% to 3% of visits to retailers' websites are converted to sales," said Cunningham. "We represent the nudge that makes consumers make the purchase."

The company benefits from the "secular shift" from consumers clipping coupons out of newspapers and other printed materials to digital coupons, Harper said.

Another big opportunity for RetailMeNot -- and an area of interest to investors -- is its mobile application prospects.

Consumers use its app to discover, store and access the digital coupons they want and to redeem the coupons online and in stores. They can browse digital coupons, stores and product category listings.

Apps also let users share digital coupons with others via email, text message or social media channels.

In addition, RetailMeNot has more than 5,000 shopping locations, including malls and shopping centers, that use geo-fence, which is a GPS-enabled virtual fence around these locations.

Using this location-based technology, the RetailMeNot app notifies consumers of saving opportunities when they are shopping near these shopping malls and centers by sending them alerts for digital coupons that can be used in the malls.

Consumers can redeem these digital coupons by scanning the barcode at the retailer's register or by having the sales associate enter the promotional code shown on the consumer's mobile screen into the retailer's point-of-sale system.

Harper sees a lot of potential with the mobile in-store opportunity for RetailMeNot. "That allows them to address a market that's about 10 times the size of their current e-commerce market."

Not Very Mobile, Yet

Mobile is only a small part of the company's revenue, RetailMeNot spokesman Brian Hoyt says. "But we believe there's a large market opportunity to grow transactional activity, especially in-store, through the mobile channel."

In the fourth quarter, 88 retailers used RetailMeNot's mobile solutions for offers to in-store shoppers, up from 65 in the third quarter.

Continuing to expand mobile and improve the app experience is a part of Cunningham's strategy. He's also focused on expanding the company's international presence, which represents 22% of revenue.

RetailMeNot hasn't talked about specific expansion or buyout plans, though spokesman Hoyt said: "We continue to be very interested in opportunities here in the U.S., Europe and in developing countries."



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas

Referenced Stocks: SALE

Investor's Business Daily

Investor's Business Daily

More from Investor's Business Daily:

Related Videos

Stocks

Referenced

Most Active by Volume

89,070,840
  • $17.26 ▲ 3.23%
78,931,485
  • $7.02 ▲ 4.46%
77,555,734
  • $6.70 ▲ 6.69%
77,025,346
  • $24.66 ▲ 0.69%
74,713,335
  • $101.80 ▲ 1.82%
72,324,726
  • $7.64 ▲ 0.79%
57,112,188
  • $17.84 ▲ 55.27%
53,321,397
  • $18.01 ▼ 4.46%
As of 12/17/2014, 04:15 PM


Find a Credit Card

Select a credit card product by:
Select an offer:
Search
Data Provided by BankRate.com