In today's edition of "Talking Stocks," consumer goods editor/analyst Austin Smith looks at a big announcement that Groupon (GRPN 8.21%)made recently. The most known daily deals site company will diversify away from its core business and add payment processing to its roster of services.
On the surface, it seems like a compelling offer for retailers: Groupon plans to charge an industry-low rate of 1.8%. In an environment where 5% processing fees are considered normal, the potential for uptake seems enormous. But a glimpse at the broader landscape reveals more competent and well-capitalized competitors such as Square, Visa, and eBay(EBAY 0.31%). Not only that, the ultra-low rate here drastically limits Groupon's potential profit. The company is taking on a large burden while limiting its potential profit. At the end of the day, Austin thinks this is a huge mistake.
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