Thoughts On the RetailMeNot IPO

| About: RetailMeNot, Inc. (SALE)

RetailMeNot (NASDAQ:SALE) priced its initial public offering on Friday July 19. The stock performed well, trading up 32% in its first day of trading. Congratulations to Guy, Bevan, Cotter, and the rest of the RetailMeNot team. Glad we were able to help out along the way. Guy wrote the initial code for the website over a weekend not so long ago – not a bad use of time.

The big question is: what should they to do to keep the momentum? The company enjoys a strong position in the online coupon market but like every business, it has its share of risks. RMN remains extremely dependent on Google organic search for the vast majority of its traffic. The problem here is obviously that RMN has no control over future Google algorithm changes and a drop in just one spot could result in a material decrease in traffic (see here). In other verticals, namely travel, Google has all but eliminated organic results from above the fold.

Another concern is with the brands themselves. RMN sends them a tremendous amount of traffic but brands would like to see additional value from the online coupon sector in general. Here are our thoughts on where they should focus next.

  • Continue to Disintermediate the Affiliate Networks: In the online coupon sector the affiliate networks still garner quite a bit of the economics without providing commensurate value. The tracking of clicks should not result in the compensation they currently receive. By continuing to build direct relationships with merchants and brands, RMN can unlock captive revenue growth. The company’s focus should be to become a next generation affiliate network that delivers new customers rather than the traffic tracking platforms that are the affiliate networks of today. RMN has enough consumer traffic and account managers to make this happen and there isn’t much the affiliate networks can do to stop this.
  • Build New Products That Deliver New Customers to Brands: RMN needs to build subscription oriented SaaS products that add additional value to the brands. Some brands view online coupons as an uncontrollable phenomenon and in some cases a tax on customers that were going to transact anyway. If RMN can develop and acquire technology that converts latent consumer purchase intent to new customers they will take their relationship with brands to a different level.
  • Diversify Traffic Profile: Their biggest risk remains Google dependence. The ability to drive direct and socially oriented traffic will de-risk the asset significantly. Kayak did an amazing job of developing a brand that has little Google risk. When Kayak went public a stunning 72% of their traffic was direct.

A couple of companies that could be a nice fit from an acquisition perspective include:

  • Revtrax: Provider of enterprise class promotion platforms that allows brands to drive and measure in-store sales from all digital channels.
  • IDInteract: Provider of demand-based marketing automation software that creates and tracks federated consumer identities and allows brands to interact with consumers when they are at their highest purchase intent based on personas’ demand signals.

Disclosure: I do not have a position in SALE.