Going against group wisdom and making a bet can pay great returns. But the bet should have a solid gut and some analysis that we did on our own to back it up. Groupon (GRPN) seems like an opportunity for this kind of bet. One of the reasons I think this is true is GRPN in many ways is like AAPL. Now don’t start hating me for saying this.
Let me explain. AAPL revolutionized mobile thru the iPhone and brought in innovations like appStore. I am oversimplifying and you might say AAPL did much more. But bear with me here. Now in the mobile communications segment AAPL faces competition from Google, Samsung and others. It started with price and then now even performance. AAPL’s iPhone business is still a cash cow, but has been slowing down. Now what does it have to do with GRPN.
Well Groupon created a whole new market segment of what we call the daily-deals space and grew at a scorching pace until competition showed up with lower price offerings and like AAPL has to contend with Big G (GOOG) and Amazon (AMZN) who have better channels to sell the daily deals. In fact Google just made it far easier for all of its advertisers to do daily-deals and discounts alongside other online ad formats.
There you go, both AAPL and GRPN have to defend their existing cash cows and at the same time come up with products that can create lasting shareholder value in face of competition that has the power to take on them. The scale of the challenge of course is different.
With GRPN, let us start with the conference call yesterday. I have to read their 10Q over the weekend, but for starters let us look at how GRPN performed on the three important areas that are key right now.
Daily Deals business: No turnaround here. Wall St. was looking at a possibility. What we saw is a year-over-year decline, dropping from $478 million in the fourth quarter of 2011 to $413 million in the most recent quarter.
Marketing Costs: dropped by 61 percent to $61 million in the quarter, while Groupon continued to grow its total customers to 41 million, a 22 percent increase.
Groupon Goods: At $225 million in the fourth quarter, they're getting close to $1 billion in annualized sales
I think Groupon Goods’ performance is a huge plus. Though CEO Andrew Mason is under severe pressure, I think they are doing the right things. As for valuation, there are headwinds from AMZN writing off its Living Social investment and how Living Social is currently valued.
While further analysis is to be done, I believe GRPN is a long term high risk buy. We have to average into it and look at charts to determine the right price points.
Any one remember, where Priceline (PCLN) was about 5-6 years ago after it fell from the IPO bubble of ’00?
And hey what does all this have to do with AAPL? Well it appears AAPL carries similar risk (not same) from competition perspective and I am trying to think about what other have been pondering. Will Buffet buy AAPL? Well that is for another post.