By Neal Rau
Groupon Inc. (GRPN) has been struggling to find ways to offset it diminishing email to consumer business, as companies like Google Inc. (GOOG) have added filters to organize Gmail subscriber mail accounts to sort emails into Primary, Social, and Promotion categories. Google's move has led to fewer consumers reading time-sensitive deals. Shares of GRPN have fallen 27% from the 52-week highs made in September. Is this a buying opportunity in shares of GRPN?
Groupon's business model has been very easy to copy, as hundreds of daily deal offers have sprung up over the past few years. Merchants also have to evaluate how much half off coupons can drive future business, and which daily deals might offer the most customers who are likely to return and pay the normal prices.
Groupon sends out emails for about 40% of its deal transactions, which it will be limiting in the future and considering removing the requirement to log in with an email address. The company plans to offer an online marketplace where consumers can search for local deals in their area, instead of the traditional email deal notifications. As the company is working on that transition, the stock has been moving lower. Based on the real-time GRPN trading report published by Stock Traders Daily, the stock has recently broken below long-term support, which is now converted resistance.
The company's business model has yet to gain traction, as Groupon's IPO price was $20 two years ago, and now the stock is trading less than half its IPO price, in very strong bull market. Facebook Inc. (FB) suffered a similar setback after its IPO, but with the help of mobile monetization, the stock has recovered and made its IPO shareholders profits. Groupon shares have rallied strongly since Andrew Mason was fired as CEO back in February, but new management still has not presented a business model that has convinced investors that the daily deal business is not just a fad.
The most recent quarter report revealed that the number of active deals at the end of the quarter increased to more than 65,000 compared with 54,000 a quarter ago. Subscribers who purchased a Groupon deal within the past year grew 10% to 43.5 million. The average revenue per customer per year dropped from $138 a quarter ago to $137 during the previous quarter.
The company's international expansion has not gone smoothly, as it entered too many markets, too soon. International business decreased 17% YOY and worse was Europe, Middle East and Africa, which declined 24% YOY. The latest expansion effort involved the purchase of competitor LivingSocial's profitable South Korean daily deals business, Ticket Monster, which Groupon purchased for $260 million in cash and stock. Ticket Monster has been one of the few strong segments of the international markets, and it makes a sizeable portion of its revenue from selling consumer goods, a line of business where Groupon has also found some success in the last year.
Groupon has many challenges and probably the most notable is whether the company can succeed in the Goods segment competing against Amazon.com, Inc. (AMZN). The traditional model still after two years has not convinced merchants if the model is nothing more than push drive-by sales with low margins, harming merchants as much as helping them.
Earlier this month, USA Today reported that during the three months ended in late October, the ratio of insider sales to purchases of Groupon shares had skyrocketed to 100-to-1. Insiders, including executives, board members and early investors - sold a whopping 301.7 million Groupon shares during that time while buying just 3.2 million. Among those selling shares in recent months is Groupon co-founder Bradley A. Keywell who sold 500,000 shares of Groupon stock in a transaction dated October 29, yielding nearly $4.7 million for Keywell, who is a board director. Shares were trading around $9.14 on October 29.
Smart money will be watching price going forward. Shares of Groupon were up 160% YTD in September, but the stock is now down over 27% from that 52-week high. The stock has broken below long-term support, which means long-term support is now converted resistance, and as long as the stock remains below converted resistance, as defined in our GRPN real time trading report, Stock Traders Daily expects lower levels. That would make GRPN a sell/short at resistance, with risk controls in place if resistance breaks higher.
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