Please ensure Javascript is enabled for purposes of website accessibility

Is Coupons.com the Next Groupon Inc?

By Adrian Campos - Feb 3, 2014 at 1:30PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Learn how digital coupons site Coupons.com plans to improve top line and user metrics in a fierce business environment.

16 years after opening its digital doors, digital coupon site Coupons.com has filed with U.S. regulators for a long-awaited initial public offering on the New York Stock Exchange. It is expected to raise up to $100 million. The news comes a few days after a rumor stating that cloud-storage company Box reportedly filed a "secret" IPO and confirms the idea that Internet companies see 2014 as a great time to jump to go public. I'm sure some of this was inspired by Twitter's successful initial public offering late in 2013.

With more than 2,000 brands on its catalogue, 17 million unique monthly visitors on average, and over 1.3 billion transactions handled in 2013, Coupons.com appears to be on its way to becoming a leading player in the fierce e-commerce industry, a space dominated by online retail giants Amazon.com and eBay (EBAY 1.68%). Can this Coupons.com continue to grow its business and eventually replace Groupon (GRPN 4.12%) as the world's largest daily deals website?

Source: Coupons.com | Corporate Website.

There's a long story behind Coupons.com
Coupons.com isn't a new start-up. The company was founded in 1998, only three years after eBay started and nearly a decade before Groupon was launched.

Unlike eBay, which escalated pretty fast and was already profitable by 1996, Coupons.com had a rough start. According to the company's website, Coupons.com's management spent three painstaking years developing the technology needed to enable digital coupons to work for manufacturers, which issue coupons, and retailers, which redeem them. The development process was particularly tricky due to security concerns and print controls.

The road to profitability
Even after these technological challenges were cleared out, Coupons.com still had to deal with manufacturers willing to shift their promotion budgets from newspapers to digital tools. Eventually, the website started escalating, as it started benefiting from a shift in consumer behavior. Manufacturers also started shifting their promotion budgets from traditional channels to websites like Coupons.com.

These trends helped Coupons.com to improve its top-line performance. However, the company is still finding it hard to make money. During the first nine months of 2013, it generated revenue of $115.3 million, a 51% increase from the same period in 2012. However, this wasn't enough for Coupons.com to generate positive cash flow, as the company registered a net loss of $12.8 million. On the bright side that loss was 75% less than last year. 

A different business model
Notice that, unlike most e-commerce players, Coupons.com makes money when a customer downloads a coupon for redemption at a grocer or physical retailer. In this way, Coupons.com acts as a complementary platform to traditional retailers, like Wal-Mart, which is one of Coupons.com's biggest partners.

Unlike Groupon, which tends to provide discounts only when a certain number of people sign up for a given offer, Coupons.com only requires its customers to install a free-printing software before printing coupons. This software allows Coupons.com to control demand and the supply of coupons.

Coupons.com's business model has certain advantages. For example, unlike Groupon, the company is said to make money whenever a customer selects or prints a coupon, even if the coupon is not used to buy a product. However, Coupons.com's operating margin may not be as high as Groupon, which is said to enjoy a 43% gross profit margin on deals with local merchants. Groupon also started offering digital coupons in November of 2013, in an attempt to move beyond daily deals.

Final Foolish takeaway
After several years in the business of digital coupons, Coupons.com is finally going public. The company is not yet profitable, but it is getting close to operating in the black, thanks to a steady increase in traffic and handled transactions.

More importantly, there is plenty of room for growth, as digital coupons in 2012 represented less than 1% of total coupon distribution volume in the U.S. As consumers continue spending more time online, the digitalization trend in the coupon world is likely to strengthen. Given this promising context, if Coupons.com manages to improve its operating margin and remain competitive, the company could have a real chance of becoming a player in the e-commerce arena. 

 

Adrian Campos has no position in any stocks mentioned. The Motley Fool recommends eBay. The Motley Fool owns shares of eBay. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

eBay Inc. Stock Quote
eBay Inc.
EBAY
$49.50 (1.68%) $0.82
Groupon, Inc. Stock Quote
Groupon, Inc.
GRPN
$13.40 (4.12%) $0.53

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
403%
 
S&P 500 Returns
128%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/16/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.