Groupon (NASDAQ:GRPN) lost nearly 90% of its value this year. The stock is trading cheaper than ever, but does this mean you should grab shares now or watch it drop to zero from the sidelines?
To help answer this question, check out our new premium report on Groupon. For a taste of what's offered in the report, below is an excerpt describing Groupon's opportunity.
The idea for Groupon originated from a platform that CEO Andrew Mason created called "The Point," which lets people post ideas to raise money or perform a community action -- but only if the idea gets enough backers. Mason's first investor pressured him to find a way to make more money from The Point, and Mason moved from social causes to local coupons. This concept proved wildly popular, and from 400 subscribers in December 2008, it grew to 44 million subscribers by December 2010. By January 2012, Groupon could claim over 150 million subscribers.
One of the biggest criticisms of Groupon's business model was the lack of barriers to entry. Groupon's popularity spawned plenty of daily-deal imitators. LivingSocial is its most direct competitor, while Google, Amazon, and eBay have also stepped in with Google Offers, Amazon Local, and eBay Daily Deals. There are plenty of smaller daily-deal sites as well, like Gilt, which offers luxury goods and experiences on sale. Even Facebook tried out the daily-deal business, but ended the service after four months.
However, Groupon does have brand power, and a huge subscriber list that new start-ups would have to spend major dollars to acquire. It has also identified a segment of the market that apparently was severely underserved in the digital age: local business advertising and discovery. As German venture capitalist Niko Waesche said:
[T]here's a huge need out there among local merchants, local shopkeepers, local services to actually advertise their services in an effective way. If this wasn't a market that existed, then Groupon could never have grown so fast. And so I think if Groupon adjusts itself just a little bit, what they might have to do is actually lower their margins ... but if they find the kind of balance between margins and the offerings they are making to these local merchants, the market is out there. And these people want to advertise. So Groupon is not going to disappear, it's going to improve its services, and hopefully have a very bright future ahead of it.
So, Groupon's future may rest beyond the crowded daily-deal space. Andrew Mason himself has said about the business, "To me, as somebody who likes to come up with ideas, it's kind of stupid; like, I've had way better ideas, way cooler ideas." And, in Groupon's registration statement, Mason writes, "Expect us to make ambitious bets on our future that distract us from our current business. Some bets we'll get right, and others we'll get wrong, but we think it's the only way to continuously build disruptive products."
Outside of its traditional daily deals, Groupon has expanded. It now offers "Goods," or physical merchandise, "Now! Deals," typically for meals redeemable immediately, and "Groupon Payments," its own mobile payment-processing solution similar to PayPal Here or Square's card reader. It also offers businesses a way to implement loyalty programs, manage staff schedules and customer appointments, and even has a restaurant point-of-sale solution called "Breadcrumb." It seems Groupon wants to help small businesses solve all sorts of typical headaches, and hopefully earn some business in return. And if it can differentiate itself as a small-business solutions provider and maintain long-lasting relationships with local merchants, it will have a business that is more sustainable and not as easily replicable as many currently believe.
Fool contributor Dan Newman owns shares of eBay. The Motley Fool owns shares of Amazon.com, Facebook, and Google and has the following options: long JAN 2014 $20.00 calls on Facebook. Motley Fool newsletter services recommend Amazon.com, eBay, Facebook, and Google. 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.