Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Is a Good Investment Deal?

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now (NYSE: COUP  ) soared an incredible 87.5% last Friday to make an exceptional IPO debut. Yet, the performance of this IPO would almost imply investors learned nothing from Groupon (NASDAQ: GRPN  ) . Thus, despite this failed lesson, do and peer RetailMeNot (NASDAQ: SALE  ) present shareholders with a good deal?

What's driving higher? is in the business of taking coupons found in a Sunday newspaper and presenting them online. It services consumer package goods companies and retailers on its site, and generates revenue when a coupon is either downloaded from its site or used in a store.

Last year, the company grew its top line by 50% and was able to earn $168 million in revenue. For this performance, scheduled a $130 million IPO with a midpoint price of $13, thus implying a market capitalization of $945 million.

Instead, the company upped the IPO price to $16 and then closed at $30, giving it a market capitalization of $2.2 billion. Clearly, the market sees room to grow and is willing to take a big bet on

Haven't we seen this before?
While not as hyped, is reminiscent of Groupon, another deal-based company's IPO from 2011. Groupon was one of the most anticipated IPOs of 2011, with 14 underwriters, and the stock price reached $30 for a 50% IPO pop, despite the company canceling much of its IPO roadshow and management dealing with a slew of questions regarding accounting practices.

Needless to say, Groupon had a lot of problems prior to its IPO, but investors were so fascinated with its daily deals and online couponing approach that they were apparently willing to forgive, forget, and value the company at nearly $20 billion. Now, we know those bets were unwise, as Groupon's current market cap sits at $5.7 billion and it has shifted focus away from online couponing in favor of e-commerce.

Groupon's online couponing business failed to produce consistent growth and was met with competing services from the likes of Google,, and even AT&T just to name a few. Still, Groupon was a large business at the time of its IPO, earning annual revenue of $1.6 billion, which gave it a price-to-sales ratio of more than 10 at its most expensive point.

Today, investors are paying a higher premium for  (and the same premium for RetailMeNot) for a business that is not only smaller, but also faces significantly more competition versus Groupon at the time of its IPO.

Hard to be bullish long-term
Currently, the single greatest catalyst for is its growth, or at least its performance in 2013. However, in an interview on CNBC, CEO said, "We're much more interested in growing in a measured, conservative way year-over-year," in response to a question of whether or not 50% growth was sustainable; his response was quite vague.

Essentially, cannot guarantee sustained growth, nor can it fundamentally support its 13 times sales multiple. The primary reasons are that couponing is a business with very few barriers to entry, and history is against There's also no social media element about the company's model.

With that said, RetailMeNot is's closest competitor, but rather than providing coupons on products such as laundry detergent or groceries, RetailMeNot offers customers deals at particular retail stores like Macy's, on brands like Hewlett-Packard, and at restaurants such as Ruby Tuesday. RetailMeNot offers a wide array of coupons not normally found in the Sunday morning paper, meaning its likelihood of longevity is greater than

Furthermore, at 11 times sales, RetailMeNot is cheaper; it has higher gross margins at 94%, versus 69% for Lastly, with 54% top-line growth last year, RetailMeNot fundamentally outperformed Therefore, it you're seeking an investment in the highly fragmented couponing industry, is likely not your best bet, as RetailMeNot looks better.

Final thoughts might be a horrible investment deal, but RetailMeNot might not be much better either. However, Groupon is a different story. Groupon's daily deals business reported $401 million in fourth-quarter sales, which is nearly double RetailMeNot and's full-year. Plus, with $400 million, Groupon has finally begun to see a year-over-year decline in the business, but its e-commerce business is growing at a consistent 50% rate.

This e-commerce business could pay long-term dividends to shareholders, but the speed with which Groupon grew and then ran dry should worry investors of RetailMeNot and The big question is at what point growth might become stagnant for and RetailMeNot, and at that point, will either company be able to innovate and create further investment value? Because these questions remain unanswered, and due to the valuation of, it clearly is not a good deal for shareholders.

More compelling ideas from The Motley Fool
It's no secret that investors tend to be impatient with the market, but the best investment strategy is to buy shares in solid businesses and keep them for the long term. In the special free report "3 Stocks That Will Help You Retire Rich," The Motley Fool shares investment ideas and strategies that could help you build wealth for years to come. Click here to grab your free copy today.

Read/Post Comments (3) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 10, 2014, at 9:05 PM, OriginalPoster1 wrote:

    The post IPO pop on does not seem sustainable. Even by the current market’s lofty valuation standards, stands out.

    Compare it to Retailmenot which has a $2.0 billion enterprise value versus’s $2.6 billion. Coupon has much lower margins and no free cash flow.

    There is a great article at the truthorfinance site that analyzes the valuation.

    The article also gets into to the fact that is focused on lower margin grocery coupons, the company spends wildly on (possibly worthless) R&D, and that there are a lot more shares outstanding than it seems.

    This one is headed much lower.

  • Report this Comment On March 11, 2014, at 10:52 AM, wesam wrote:

    Nice thoughts and business review. I believe the IPO pop is not justified. Even the IPO price is not sustainable. The company needs to grow substantially to justify 16 $ not 30%. Now if investors see it different way then good luck. COUP is a good way to lose money

  • Report this Comment On May 22, 2014, at 9:06 AM, srknt099 wrote:

    the field of the online shopping is more dominant task over the real time shopping because the online shopping is more overcame from the burden for both the users and the manufacturers from the users point of view it overcame from the burden for user to travel upto the miles from home to the mall or showroom and also in real time shopping the user have the rights to select only the item of the perticular brand or showroom but in the online shopping he have the option to select from the 1000of products from the 100of brands so here i suggest you a link which offers you the discount upto 80% off on all the mobiles along with the free accessories visit the link

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2870662, ~/Articles/ArticleHandler.aspx, 8/31/2015 5:12:29 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Brian Nichols

Brian Nichols is the author of "5 Simple Steps to Find the Next Top-Performing Stock: How to Identify Investments that Can Double Quickly for Personal Success (2014)" and "Taking Charge With Value Investing (McGraw-Hill, 2013)". Brian is a value investor, but emphasizes psychology in his analysis. Brian studied psychology in undergrad, and uses his experience to find illogical value in the market. Brian covers technology and consumer goods for Motley Fool. Brian also updates all of his new and current positions in his Motley Fool CAPs page. Follow Brian on Twitter and like his page on Facebook for investment conversations and recent stories.

Today's Market

updated 2 days ago Sponsored by:
DOW 16,643.01 -11.76 -0.07%
S&P 500 1,988.87 1.21 0.06%
NASD 4,828.33 15.62 0.32%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/28/2015 4:02 PM
COUP $9.28 Down -0.04 -0.43%
GRPN $4.60 Up +0.32 +7.48%
Groupon, Inc. CAPS Rating: *
SALE $9.14 Up +0.46 +5.30%
RetailMeNot CAPS Rating: *****