Rumors of Groupon's Demise Are Greatly Exaggerated

Online deal purveyor Groupon (NASDAQ: GRPN  ) routinely gets blasted by analysts and financial pundits. It's supposedly stuck in a death spiral, still reeling from the effects of the unceremonious exit of its former chief executive officer, the threat of competition from new entrants like Google (NASDAQ: GOOG  ) (NASDAQ: GOOGL  ) , and a collapsing stock price. Indeed, Groupon definitely has room to improve and expand.

However, this opportunity should get the attention of Foolish investors. Groupon is making huge investments that are weighing on the company now, but their long-term payoff is simply too big to ignore. Underneath the prevailing criticism, Groupon is executing on its key strategic initiatives and quietly posting solid growth figures. That's why you'd be well-advised not to dismiss Groupon's potential.

Strong numbers across the board
Groupon's stock is down about 35% this year. Judging by its share price performance alone, you'd naturally assume that Groupon had a terrible year. However, that's really not the case. Groupon's key metrics, including gross billings, revenue, and active customers, all posted strong growth in 2013.

For example, Groupon grew gross billings and revenue by 7% and 13%, respectively, last year. Moreover, its active customer count increased from 41 million to 44.9 million last year, which represents a 9.5% growth rate. While these numbers aren't earth-shattering by any means they certainly don't indicate a dying company, which is what Groupon's share price performance implies.

Plus, the company still has ample opportunities for future growth, particularly in the emerging markets. North America comprised half of Groupon's billings and 59% of its revenue last year, which means that its international growth potential remains intact.

Groupon's strategic investments, which include acquisitions and new categories of offerings, will make this possible. Groupon started out solely as a purveyor of offerings for local merchants. Groupon has now expanded into three key areas: local, goods, and travel. In addition, Groupon has set up a number of subcategories so it can cater to customer preferences across a wide range of areas: food and drink, events and activities, beauty and spa, home improvement, electronics, and apparel.

Competitive threats present a danger
On this front, Groupon does face some stiff competition. Competitors can replicate its offerings fairly easily, and with its expanded categories Groupon is treading on the turf of some huge competitors. Groupon's 2013 10-K explicitly fleshes this out in greater detail.

It stated, "We anticipate that larger, more established companies may directly compete with us over time. Many of our current and potential competitors have longer operating histories, significantly greater financial, technical, marketing and other resources and larger customer bases than we do."

This is where the threat from the likes of Google comes into play. Its Google Offers platform allows users a fast, convenient way to pull up offers on their phones and redeem them instantly, and discover new and potentially interesting destinations. Clearly, the fact that Google Offers works very well with Google's Maps and other applications does represent a threat that Groupon will have to deal with.

That doesn't mean Groupon and Google can't coexist. There's plenty of growth to go around. One area for Groupon to keep growing is mobile integration. Groupon has not yet fully broken into mobile. Only half of Groupon's global transactions were completed on mobile devices last year. As the purchase process for Groupon offerings becomes easier and more streamlined, customer adoption and billings are likely to grow.

In addition, Groupon's investments in new markets and categories should pay off. Groupon acquired LivingSocial Korea and its subsidiary Ticket Monster in January for $100 million and nearly 14 million shares of Groupon stock. Also in January, Groupon acquired Ideeli, a women's fashion site based in the United States. Groupon believes both acquisitions will immediately add to its revenue and that they hold potential for future growth if Groupon can integrate those customers into its other existing offerings.

The Foolish bottom line
Put simply, Groupon is by no means a dying company, which is what its stock price performance suggests. The prevailing negative sentiment regarding Groupon would have you believe it has no room for growth left, but that doesn't seem to be the case. Groupon actually did well last year in growing its business and acquiring new customers. Also, its aggressive investments into new categories and potential expansion across the globe could provide even greater growth down the road.

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