The run-up in Groupon's (Nasdaq: GRPN) share price from its Sept. 11 low of $4.25 a share was a welcome sight for shareholders. As discussed in an earlier article, a concern regarding Groupon's appreciation was whether there was a fundamental basis underlying the positive movement. As you know, buying sprees led by contrarians, bottom fishers, and/or day traders aren't sustainable over the long haul. But after some intriguing words from Groupon CFO Jason Child, it looks as if there may be some method to the buying madness.
Europe and beyond
As of Q2, Groupon generates about 54% of its revenues from international operations, down from 60% in Q2 2011. But before the naysayers scream "aha!," the tightening of the disparity of revenue streams is actually a good thing. As the Groupon business model continues to mature, the improved balance in geographic markets, and the diversification it brings, will serve Groupon well.
Though North America remains the primary driver of Groupon's revenue, it's the opportunities in Europe that was the impetus for Child's recent positive comments. The CFO lent credence to Groupon's 14% stock-price appreciation in stock price last week, as well as the notion there's more to it than market fickleness.
At an investor conference earlier in the week, the Groupon CFO addressed the opportunity Europe presents, specifically relating to its SmartDeals Technology. While this shouldn't be a surprise -- Groupon's been talking for months about rolling out the marketing tool in Europe -- it's soon to be a reality.
If you're not familiar with the technology, it works like this: SmartDeals gives Groupon customers a more personalized experience by matching coupon offers to individual tastes and needs. Groupon mentioned the technology as a key driver for the surprisingly huge jump in North American revenues in the recent quarter.
The problem had been that SmartDeals wasn't available overseas -- or in any market outside the U.S. and Canada. As per Child, that's ready to change. SmartDeals is "one of the primary drivers we expect to see in the back half of this year," Child said. "That should be one of the solutions for helping us to drive growth in the future." SmartDeals is ready to affect revenues the second half of 2012, and it couldn't have come at a more opportune time.
Why SmartDeals is such a big deal
Groupon's international revenues were largely to blame for last quarter's "disappointing" results. Though a 31% increase in sales outside North America is hardly negative, it was viewed as such, and Groupon's stock subsequently dropped to a low of $4 on Sept. 4. But with the rollout of SmartDeals in Europe, Child and the Groupon management crew expect overseas markets to more than hold their own. And based on the buying spree these past several days, Groupon investors are of the same mind.
And let's not forget Groupon's foray into what management calls Groupon Goods. The direct-to-consumer retail line unveiled last quarter is already generating an annual run-rate of $200 million in revenue. Of course, margins are nothing like that of Groupon's traditional business lines, but using its existing client base to diversify its product offerings is a sound strategy.
Funny how things change when a shift in sentiment occurs. Now, after several days of stock-price appreciation, analysts are suggesting that Groupon's last quarter may have been nothing more than "Internet seasonality," something all companies go through. Where were these guys last week?
And those competitive pressures from Amazon.com's (Nasdaq: AMZN) LivingSocial and Google (Nasdaq: GOOG) Offers? They were cited, along with Facebook (Nasdaq: FB) and its Special Deals service, as a reason for the precipitous decline in share price. The online-coupon playing field was getting too crowded, analysts said, especially considering the players.
Today? Thankfully, analysts and investors seem focused on Groupon's fundamentals -- i.e., the rollout of its SmartDeals technology and the international growth potential it represents. Finally, something investors can hold onto -- a fundamental basis for Groupon's recent stock performance. Now, that wasn't too much to ask, was it?
Beyond online deals, Facebook has struggled to find additional revenue streams. CEO Mark Zuckerberg and the team certainly have challenges ahead of them. But at these depressed stock prices, are there opportunities for growth? For a detailed look at all the risks and upside potential of Facebook, take a look at our premium research report on all things Facebook.
