It's been a nice beginning to the fall season for Groupon (NASDAQ:GRPN) and its shareholders. After hitting a low of $4.15 a share to end the dog days of August, Groupon has been on a roll. What's especially good to see, particularly if you're a Groupon aficionado, is that the stellar performance has legs. In other words, there are tangible reasons for the performance: Groupon's 25% stock appreciation comes on the heels of new product offerings, further diversifying revenue streams, and not the whims of an overly excited analyst.
The Groupon Payment service announced last month, along with the recent rollout of Breadcrumb -- an iPad-specific application for merchant customers -- is right in line with Groupon's strategic business initiatives. Given time, Groupon's new offerings, along with its reservations tools and direct-to-consumer retail business lines, are likely to become substantial revenue generators. But here's the thing -- don't get caught up in the wait, because these new services will benefit Groupon long before they affect the bottom line.
The (first) latest and greatest thing
Groupon Payments was successfully released to the general masses the middle of last month, and the response was everything a shareholder could have hoped for. An immediate 14% jump in share price left little doubt what the market thought about the low-cost merchant payment alternative. Going head-to-head with eBay's (NASDAQ:EBAY) PayPal unit? No problem.
Groupon Payments is targeting a different merchant from the large credit card or payment alternative companies: small-business owners who have avoided accepting credit cards because of high transaction costs. With a 1.8% fee and a flat $15 charge per transaction, Groupon Payments undercuts eBay and the rest of the competition in a big way.
The (most recent) latest and greatest thing
Just as with Groupon Payments, the new product announcement on Oct. 10 is for merchants using iPads. Breadcrumb, named after the company Groupon bought in May of this year, works alongside its Payments solution helping business owners record and track consumer purchases. The new service is perfectly aligned with Groupon's grander initiative of becoming an invaluable business partner providing detailed business analytics -- marketing, tracking, buying habits, and so on -- to help merchants grow their business.
To hear the analysts talk, you'd think the objective is for Groupon to grow beyond its bread and butter -- the Daily Deals service that brought the online coupon retailer to prominence. And to some extent that's true, as most any time a company expands offerings and potential revenue sources, it's a good thing. And last quarter's first-ever decline in quarter-over-quarter gross billings in Groupon's core business line would seem to substantiate the need for "solutions." But let's look at these new offerings in a slightly different light.
The upshot of Groupon's new products
There have been grumblings in the past, as outlined in an article the middle of last month, that many Groupon customers are less than satisfied with their Daily Deals results. Groupon's new products, in addition to the potential for adding profits in and of themselves (eventually), are ideally suited to rev up the Daily Deals engine. How?
Use the Groupon Payments solution to get in the door and establish a relationship, and then build on that over time. Think of the infamous "loss leader" concept car dealers and retailers employ to bring shoppers in. Groupon is positioning the highly profitable Daily Deals to benefit in the same way, and newly appointed VP of North American Sales Rob Kilgarriff and his sales team must love the possibilities.
None of the new products, or the ancillary benefits garnered from the offerings, detract from the primary mission at Groupon -- to continue reinventing itself into a full-service business solutions provider. Groupon's primary competitors, Amazon.com (NASDAQ:AMZN) via LivingSocial, and Google (NASDAQ:GOOGL) Offers, are merely one of many revenue generators for each of these industry behemoths.
Groupon, much like another would-be competitor, Facebook (NASDAQ:FB), with its Facebook Coupon offering, is exploring ways to expand revenue sources. And just like Facebook, Groupon's new offerings make it difficult for analysts and investors to measure risk/reward. Credit Suisse initiated coverage on Groupon recently with a "neutral" rating, setting a price target of $11 a share. What? At Groupon's current $5 share price, give or take, I'll take that "neutral" any day.
Groupon's not out to be all things to all people, simply most things to small- and medium-sized business owners. The new products? If positioned correctly, Payments and Breadcrumbs will generate revenues in and of themselves, and support the continued growth of Groupon's core business -- Daily Deals.
Much like Groupon, Facebook is searching for additional ways to generate revenues. Mobile, analytics, leveraging business relationships -- you name it. To learn more about the upside potential associated with its efforts, and the risks, don't miss the Fool's premium report on all things Facebook.
Fool contributor Tim Brugger currently holds no securities positions mentioned in this article. The Motley Fool owns shares of Google, Amazon.com, and Facebook. Motley Fool newsletter services have recommended buying shares of Facebook, Google, and Amazon.com. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.
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