Investment Thesis Groupon GRPN by Augustine Fou Jan 2014


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Groupon has been an investment darling for the last several years. And after its IPO, reality set in. But despite the recent turnaround (stock is off its lows), are there any signs of a long term, sustainable business?

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Investment Thesis Groupon GRPN by Augustine Fou Jan 2014

  1. 1. Investment Thesis Groupon, Inc. (GRPN) Dr. Augustine Fou January 2014 -1- Augustine Fou
  2. 2. Executive Summary INVESTMENT THESIS GRPN is well off its lows, but I remain bearish on the stock and company unless it can significantly evolve its business model and become less dependent on cash-flow arbitrage and “fad-dish” consumer behavior. -2- Augustine Fou
  3. 3. Executive Summary Key to Groupon’s Initial Success 1. enough people needed to buy the deal before it became real (so users tended to tell their friends via social networks 2. there was a deadline to buy it (if you missed one, you won’t want to miss the next) -3- Augustine Fou
  4. 4. Executive Summary Key Points • Nothing proprietary; major competitors already experimented in the space • Competitive landscape filled with established players e.g. Amazon Local, Google Offers), niche dominators (e.g. OpenTable) • Applicable to very high margin catagories like clothing; not feasible on big ticket items like consumer electronics (HDTVs) or low margin retailers (like grocery stores). • Useful in generating awareness, not viable as long term customer retention tactic for merchants. -4- Augustine Fou
  5. 5. Stock Price History -5- Augustine Fou
  6. 6. Recent Margin History $600M quarterly revenue 40% cost of revenue 58% SG&A 2% operating income -6- Augustine Fou
  7. 7. Jan 2014 Update Visitors 16 million /mo Visits 37 million /mo -7- Augustine Fou
  8. 8. Jan 2014 Update Visits/Person 2.3 /mo Pages/Visit 14.5 /mo -8- Augustine Fou
  9. 9. Competitive Landscape Offline players Online Local Marketing - - Valassis Advo Valpak (local equivalents) Walmart (experiment) Yelp OpenTable Fandango mobile app Online Coupon Players Online sales sites - - RetailMeNot Coolsavings Smartsource MoneyMailer Rue la La LivingSocial Google Offers Amazon Local Woot (Yahoo) Payment Companies -9- Google Wallet Square Intuit GoPayment Technology competitors - YouTechnology (Softcoin) Augustine Fou
  10. 10. Historic Precedent January 2001 Mercata to shut down after burning through nearly $100 million in venture money on “group buying” service. - 10 - Augustine Fou
  11. 11. Dr. Augustine Fou – Digital Consigliere “I advise clients on innovating their business to stay ahead of trends and reduce their reliance on single forms of revenue. I also provide expert witness testimony regarding technology, business model and competitive landscape of internet-related companies.” FORMER CHIEF DIGITAL OFFICER, HCG (OMNICOM) MCKINSEY CONSULTANT CLIENT SIDE / AGENCY SIDE EXPERIENCE PROFESSOR AND COLUMNIST ENTREPRENEUR / SMALL BUSINESS OWNER PHD MATERIALS SCIENCE (MIT '95) AT AGE 23 ClickZ Articles: Slideshares: LinkedIn: - 11 - @acfou Augustine Fou