Groupon Inc Common Stock (NASDAQ:GRPN) shares continue to torture shareholders. There doesn’t seem to be any new and obvious data or headlines that seem up to the task of taking credit for the move lower to close out the week, including the 8.5% dive on Friday.
We thought we would express a theory about why the stock may be destined to basically never break out of its funk.
Groupon Inc Common Stock (NASDAQ:GRPN) is a coupon company. They provide tailored discount packages to align local businesses with customers, and customers with deals.
Groupon is not the only company doing this. Among others, they are competing directly with Amazon and Google, who also offer the same service – except they do it sparingly and only when and where it is most advantageous.
By and large, there are opportunistic competitors.
No Loyalty Among Thieves
It is not an original argument to say: “Groupon will never succeed because its business model contains no barriers to entry.” That argument has been made, and we agree with it. But, what is perhaps more interesting is to understand why this is excessively and dramatically the case for Groupon.
It isn’t just a lack of barriers to entry for competitors. It is a peculiarly unprotectable market. The company focuses on something that is the epitome of competitive vulnerability.
By and large, the persistent and insurmountable problem for Groupon is endemic to its business: in the bargain market, there is no such thing as brand loyalty.
The consumer relationships the company makes through doing business are ephemeral. If you use a coupon, you could care less where it came from. If you can save $20 on dinner, you do it. If can save $21 on dinner, you do that instead.
If a company presents you with the opportunity to save $20 on dinner 5 times per month, and then does it again the next month, but a different company comes along with a coupon for saving $20.01, you take that one instead.
The net effect of this reality is that no amount of investment will ever pay off for anything more than a narrow victory. There is no such thing as cumulative or emergent value creation from investment for Groupon, and there never can be given its present model.
No premium will ever come into the shares of an unprofitable company that is operating in a market where no amount of investment can ever produce anything more than single-serving, disposable ROI.
In addition, as noted above, if the margins ever expand, Google and Amazon (and Groupon Clone) will always be nearby, with an ear to the ground, to swoop in and tighten them back up.
If this is to change, the company would need to effectively pivot and enter a new market based on a different business model – ie, attempt to compete directly with something like Yelp or Grubhub, including the coupon business as a perk to have a competitive advantage in service of a different end market value proposition.
Groupon Inc Common Stock (NASDAQ:GRPN) trumpets itself as a company that operates online local commerce marketplaces that connect merchants to consumers by offering goods and services at a discount in North America and internationally.
The company provides deals in various categories, including events and activities, beauty and spa, health and fitness, food and drink, home and garden, and automotive; and deals on various product lines, such as electronics, sporting goods, jewelries, toys, household items, and apparel, as well as provides discounted and market rates for hotel, airfare, and package deals.
Groupon Inc Common Stock (NASDAQ:GRPN) pulled in sales of $617.4M in its last reported quarterly financials, representing top line growth of -6.8%. In addition, the company is battling some balance sheet hurdles, with cash levels struggling to keep up with current liabilities ($675.7M against $918.8M, respectively).
The company will post earnings on October 31.